IRA Rules: Penalty Free Withdrawals
The government has set in place many types of IRAs and defined IRA rules for each of them. These IRA rules state the requirements for things such as rollovers, withdrawals, and other transactions that can occur with these accounts. IRAs were created by the federal government to encourage individuals to save money for retirement.
Tax benefits are one of the major benefits. IRA rules are used to limit when and how much money can be accessed through an IRA account. Some of the IRA rules that have been put in place allow account holders to withdrawal their money early without being charged a penalty fee. Early withdrawal IRA rules and associated penalty fees are used to ensure the accounts are used for retirement and not other reasons.
IRA rules state that money cannot be withdrawn until the age of 59 1/2 and a ten percent penalty fee will apply along with taxes if they are taken early. Even with these set IRA terms, other IRA rules have been set that allow non-penalty early withdrawals for specific situations. In order to take advantage of these IRA rules, the account itself must be at least five years out from the original contribution date.
According to IRA rules, withdrawals of contributed funds after this time are automatically penalty free because taxes are taken out before the contribution is made. Particular IRA rules determine when withdrawal of earnings has no penalties.
According to IRA rules, five situations allow for early withdrawal without penalties. When the account owner passes, the beneficiary receives the funds without a penalty being charged. If you become disabled, IRA rules state that a withdrawal has no penalties.
Medical expenses are another situation. Conditions included in the IRA rules are the sudden oncoming of major medical costs or having to pay for your own insurance due to unemployment. Withdrawing money from your account to cover these expenses is penalty free. Expenses must be over 7.5% of a person’s adjusted income to qualify under IRA rules.
When you are buying your first home, ten thousand dollars can be withdrawn to cover buying the home. IRA rules also allow this money to be done for construction or repairs on a first home. Tuition fees along with room and board costs can be paid for with an IRA withdrawal as well. IRA rules require the student to be enrolled part-time at the very least.
One final situation permits a non-penalty withdrawal and that is when an IRS levy might occur due to unpaid taxes. The money in your account can be seized by the IRS without paying a penalty. IRA rules are very abundant, and it can be very hard to know where your exact situation fits into the mix.
A certified accountant can help you determine if your withdrawal can be performed without penalties under IRA rules. IRA rules include certain circumstances as qualified distributions and allow withdrawals on earnings to be done without any penalties. These include death, disability, first time home buying, higher education expenses, medical expenses, natural disasters, and tax problems. Research qualified distributions and IRS rules to learn more about your withdrawal options.
SUMMARY:
There are so many IRA rules and regulations set by the federal government that sometimes they can be very hard to follow. The basics of account withdrawals are very simple; however IRA rules have complicated these by qualifying some withdrawals as penalty free. Contributions to the account can be taken out after five years without penalties being charged.
Earnings that are withdrawn early may have a penalty fee. Exceptions set under IRA rules include inherited funds, permanent disability, buying your first home, and excessive medical costs. Other withdrawals can also qualify. There are many standards that must be met and it is best if you discuss how the IRA rules apply to your circumstances with an experienced professional.
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