Early Withdrawal

Archive for June, 2006

Question: Early IRA withdrawals for a house down payment?

My wife and I are getting ready to put a down payment on our first house, and I know that I can take a $10K withdrawal from a traditional IRA penalty-free. What I don’t know is, can my wife ALSO do this (we file jointly). Also, I know that there is a similar (but slightly different ) rule regarding Roth IRA’s. Does anybody know if I can do all three ($10K from my rollover IRA, $10K from my wife’s rollover, and $10K from my Roth)?

I tried looking at the instructions for IRS form 5329, and found them utterly baffling. HELP!!!

Answer: Your “taxpayer unit” (you AND your wife) can only take a maximum of $10,000 for the “first-time homebuyers exemption” from all of your Traditional IRA’s without being subject to the penalties.

You can also withdraw any amount of your Roth IRA that YOU HAVE CONTRIBUTED. For example, if you’ve got a Roth IRA that is worth $10,000, and you’ve contributed $7,500 and it has grown by $2,500 since you started it, you can withdraw the $7,500 that YOU contributed to it, any time, for any reason, without penalty. (This is one of the advantages of a Roth IRA vs. a traditional IRA).

Protect Your IRA & 401k From the IRS!!!! * Workshop*

When talking about 401k Early Withdrawal or IRA Early Withdrawal, you probably would come across the term 72 t, 72t Early Retirement, 72t distribution, early 72t withdrawal, tax code section 72t, 72t payout, and so on. But, what is a 72 t distribution? And, how can 72t rule help you with IRA Early Withdrawal? Assuming that people must talk about early 72t withdrawal because it allows them to take Early Withdrawal from IRA or 401k tax free and penalty free, right? 

The answer to what is a 72 t distribution?

The short answer to this what is a 72 t distribution? question is that: A 72 t distribution is a way to an IRA or 401k early retirement withdraw without penalties. 

Internal Revenue Code Section 72t allows an individual to withdraw assets from an IRA without incurring the 10% IRA Early Withdrawal penalty. 

Is there a catch to the rule 72t distribution?

Most certainly. You don’t think the IRS is going to let you do IRA Early Withdrawal without a catch of some sort, do you? The good news is, if you know what a 72 t distribution and the rule 72t in advance, you can decide if a 72t distribution is right for you before you get deep into 72t Early Retirement plan. 

What I need to know about rule 72t Early Retirement plan

Section 72t rule generally requires that a schedule of substantially equal payments made not less than annually be adopted and used until age 59 1/2 or for five years, whichever occurs later. So, you can see that if you did not know how a 72t distribution rule works, you could end up having to withdraw all your IRA money early. Many people need to do an Ira Early Withdrawl once and they are so concerned about tax and IRA Early Withdrawal penalties that they set up the 72t Early Retirement account. Then the next year, they don’t need any more money from their IRA but they are stuck having to keep withdrawing money from their IRA each year because of the 72t distribution plan. So, consider taking a 72t distribution carefully. 

How are 72t Distributions maculated?

A 72(t) distribution schedule is calculated using one of three methods: 

1. Required Minimum Distribution 
2. Amortization, and 
3. Annuitization 

Question: HBP / RRSP withdrawal possible?

I withdrew $20K under HBP as first time buyer.

I was being aggressive in paying it back early and made an $8K payment to my RRSP this year (2007) which I intended to use as repayment towards my HBP balance (the mandatory HBP repayment amount was only like $2K or so). I haven’t filed any claim/taxes with the CRA with respect to this $8K amount (this will happen in early 2008). Now I need the cash for other needs and wish I had not been aggressive in making the payment for this year.

So the question is can I withdraw $8K – $2K (min req’d) = $6K from my RRSP account without it being hit with taxes?

Answer: Yes, but since you are withdrawing $6,000, the bank will have to withold 20% of the amount for taxes at the time you make the withdrawal, unless you fill out this form: http://www.cra-arc.gc.ca/E/pbg/tf/t3012a/t3012a-06e.pdf

For more information on withdrawing unused contributions:

http://www.cra-arc.gc.ca/tax/individuals/topics/rrsp/withdrawals/unclaimed/menu-e.html

TAX FREE SAVINGS ACCOUNT ~ Good option for those who max out their RRSP or for Seniors