Turn 59 1/2.
Once you turn 59 1/2 you can withdraw any amount from your IRA without having to pay the 10% penalty. You will still owe regular income tax on each withdrawal but the penalties are avoided.
Use the distribution to pay for higher education costs for you your spouse or your children or grandchildren and avoid penalties. College costs include books fees tuition and other supplies required for attendance. If the college student is at least a half-time student room and board also count toward the exemption. Qualifying institutions include colleges universities and vocational schools that are eligible to participate in federal student aid programs.
Buying First Home
If you want to buy build or rebuild your first home or the first home of your child grandchild or parent you can take a penalty-free IRA distribution of up to $10000 ($20000 for couples). If you or your spouse did not own a home during the two-year period leading up to the home sale the IRS considers you to be a first-time homeowner. If the purchase or construction of your home is canceled or delayed the money can be put back into your IRA within 120 days of the distribution to avoid penalty.
IRA distributions can be used to pay for unreimbursed medical expenses that exceed 10% of your adjusted gross income without incurring the early withdrawal penalty as long as the distribution is in the same year as the medical expense.
Following a period of unemployment IRA distributions can be taken without penalty to pay for health insurance for you your spouse and your dependents. To qualify you need to receive unemployment compensation for 12 consecutive weeks due to job loss. The distribution must be taken the year unemployment compensation was received or the following year and no later than 60 days after you have been reemployed.
You can qualify for an exemption to the early withdrawal penalty if you become disabled to the point that you cannot participate in profitable activity due to your physical or mental condition. You will have to show proof of this condition from a physician stating that your condition can be expected to result in death or to be of long continued and indefinite duration.
Give it to an Heir
If you die before the age of 59 1/2 your traditional IRA can be distributed to a beneficiary or your estate without incurring the 10% penalty. However if your spouse inherits the IRA and elects to treat it as his or her own it may become subject to the 10% penalty.
Withdrawals taken by members of the military reserves including the Army Reserve Naval Reserve Marine Corps Reserve and Air National Guard will not receive a penalty for IRA withdrawals if they were called to active duty after September 11 2001 for a period of more than 179 days or an indefinite period. The distribution must be taken during the active duty period to avoid penalty.
Roth IRA Withdraw
If you have a Roth IRA that is at least five years old you may be able to withdraw your contributions but not the earnings without incurring an early withdrawal penalty.
Keep the Money in a 401k
Any employee who leaves their job the year they turn 55 or older can make 401k withdrawals for any reason without having to pay the 10% early withdrawal penalty. However if you roll the money over to an IRA you will have to wait until you turn 59 1/2 to avoid the penalty. If you have retired after 55 and prior to 59 1/2 you might want to reconsider before rolling over that 401k plan to an IRA because there are opportunities available prior to rolling that money to an IRA to get penalty-free withdrawals.
Maybe you still aren’t sure if you qualify to use any of these options. Lindemeyer CPA can help. We know the requirements and eligibility of retirement accounts and can help you decide if early withdrawal is best for you. Click here to learn more about early withdrawal or to set up an initial consultation with our team.