You might not have to wait until you're 59 1/2
7 Penalty Free Ways to Withdraw Money from Your Retirement Account
by Ryan Vance
Choosing Beneficiaries for Your Retirement Plans
How a 401k Loan Affects Future Wealth
Free Get Out of Debt Course
Under most circumstances, an early withdrawal of money from a 401K account or IRA (Individual Retirement Account) would trigger a 10% penalty fee. However, there are certain circumstances when you can withdraw money from your IRA without penalty. Here are 7 ways to access that money early without penalty.
Health Insurance Premiums during Unemployment
If you become unemployed and lose your health coverage, you will definitely have difficulty affording monthly premiums. Once you have been unemployed for 12 weeks continuously, the IRS allows you to make a penalty free withdrawal from your IRA (Individual Retirement Account) to cover health insurance premiums. This privilege will expire once you have been reemployed for 60 days and more.
First Home Purchases
If you find yourself in a situation whereby you are $10,000 or less short of the down payment for your first home purchase, then you can withdraw from your IRA without penalty. This withdrawal can also be applied to the payment of qualified cost of buying, building, or rebuilding a property. The qualified cost must, however, be paid no later than 120 days after the withdrawal is made from your IRA account.
Higher Education Expenses
You can also apply for an early withdrawal from an IRA account without incurring penalty to cover qualified higher education expenses. This includes the cost of tuition, books, supplies, and equipment required for the attendance of a higher institution. This privilege applies whether you are the person getting a higher education, your spouse, children, grandchildren, or dependents. Remember that withdrawals from an IRA account would most likely count as an income for the student beneficiary thereby limiting eligibility for financial aid.
IRS (Internal Revenue Service) Debts
Another scenario when the 10% penalty will not apply to an early withdrawal from an IRA is if the withdrawal is meant to pay an IRS debt.
Large Medical Bills
If you incur large medical bills, a withdrawal to pay those bills would be exempted from the 10% penalty fee for early withdrawals. Note that you would need to provide evidence that the withdrawal is meant to pay for medical expenses.
Get the most for your money.
Compare CD rates now.
Cover Expenses after Disability
Another instance when you can withdraw from your IRA early without penalty is to cover expenses after a total or permanent disability. You will, however, have to provide documentation from your physician to be eligible for this privilege.
You are allowed by the IRS to borrow against your 401K provided your employer permits it without triggering the 10% penalty fee.
Take the Next Step:
- Find out if you are heading for debt trouble. This simple checklist can help you determine if you are and point you in a better financial direction.
- Keep your finances on track by visiting our money section each week. We are always finding new ways to help you with your finances.
Share your thoughts about this article with the editor.
More Money Tips & Tools
- Could social media be causing you to overspend?
- Managing money during different stages of life
- Budgets: A management tool for expenses
- Saving-money secrets of the rich and frugal
- 5 low-risk ways to earn higher interest now
- How to save money fast
- 7 IRA withdrawals that don't trigger a penalty
- This week's Readers' Tips