The general rule is that if you withdraw traditional IRA funds before age 59 1/2 then you will pay a 10% penalty on the early withdrawal (plus regular US and state income taxes). For every rule there are exceptions, and if you meet one of these exceptions you can avoid the 10% penalty (but not the income taxes).
Exceptions:
1. Permanent Disability
2. Death of the IRA Owner
3. For Medical expenses that are greater than 7.5% of your adjusted gross income.
4. To help pay for a first-time home purchase ($10,000 max)
5. To pay higher education (college) costs for you, a spouse, a child, or a grandchild.
6. To pay back taxes to the IRS after a levy has been placed against the IRA
7. To pay medical ins. premiums after losing your job (and being on unemployment for 12 weeks)
8. As part of substantially equal periodic payments based on your life expectancy.
9. Ordered by a domestic relations court (divorce settlement).
Keep in mind that you can always take the original contributions from a Roth IRA out without penalties or taxation (see here why I love the Roth so much).
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The content on this blog (www.acollinscpa.blogspot.com) is my personal opinion based on my study and understanding of tax laws, policies and regulations. It’s provided for your private, noncommercial, educational and informational purposes only. It’s not a recommendation or endorsement of any company or product. It should not be relied upon as specific tax advice for your personal situation. I strongly suggest that when it comes to filing your taxes, you get additional, professional guidance from individuals who are familiar with your specific circumstances. Those who choose to rely solely upon the information on this site do so at their own risk and peril, and cannot hold the author liable in any form or fashion.
IRS CIRCULAR 230 DISCLOSURE REQUIREMENT: IRS Circular 230 requires us to notify you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding tax penalties that may be imposed by law.
IRS CIRCULAR 230 DISCLOSURE REQUIREMENT: IRS Circular 230 requires us to notify you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding tax penalties that may be imposed by law.
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