Ways to Ira Early Withdrawal NO PENALTY

What you already know...

In order to limit 401k early withdrawal and IRA early withdrawal from these long-term savings investment vehicles, the Internal Revenue Code imposes a 10% premature early IRA distribution penalty tax on IRA early withdrawals made before age 59½. (The premature distribution penalty tax is 25% if distributions are made from a SIMPLE IRA in the first two years of participation.)

This penalty tax is in addition to the ordinary income taxes due on the taxable portion of any IRA early distribution.

Exceptions to early IRA withdrawl penalty

However, there are several ways in which IRA early withdrawals can be made before age 59½ without facing the premature IRA early distribution tax penalty. These exceptions to early IRA withdrawl penalty are:

• If the IRA early withdrawal is because of the disability or death of the IRA owner.

• If the IRA early withdrawal is made for payment of certain medical expenses which exceed 7.5% of your Adjusted Gross Income.

• If the IRA early withdrawal is made for payment of health insurance premiums if you’ve been unemployed for at least 12 weeks.

• If the IRA early withdrawal is made for payment of qualified higher education expenses.

• If the IRA early withdrawal is used for the purchase of a first home (There is a $10,000 lifetime limit on these withdrawals.)

• If the IRA early withdrawal is used to pay IRS tax levies.

What many people don’t realize about exceptions to the IRA withdrawl penalty

What many people don’t realize is that in addition to the exceptions to IRA withdrawl penalty related to these life events, an IRA owner is permitted to make penalty-free IRA early withdrawals for any reason if he or she sets up a schedule of “substantially equal periodic payments.” This added exception to the IRA withdrawal penalty rule is called the 72t rule distribution.

About 72t distribution

These 72t distributions — the name comes from the section of the Internal Revenue Code permitting IRA early withdrawal —can be used to meet a variety of needs for current income.

Whatever the reason for tapping into your IRA by means of IRA early withdrawal before age 59½, a 72t distribution can help you achieve your current financial goals without wasting financial resources on penalties.

Any IRA owner can begin taking a 72t distribution at any time, for any purpose. Moreover, money in 401k retirement plans or other qualified retirement plans that is rolled over into an IRA can then be withdrawn in this manner as IRA early withdrawals.