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Avoid IRA Early Withdrawal Penalty
NEW YORK (11/19/13)--Your finances are tight and you know you have a substantial sum sitting in your Individual Retirement Account. So how do you make an early withdrawal, and get some much needed cash, without paying too high a price for it?
 
The bad news is that avoiding paying taxes on an early withdrawal may be impossible, but the good news is there are ways to get around paying a 10% penalty (MarketWatch Oct. 22):
  • Annuities. You can make what are called "substantially equal periodic payments" calculated on your life expectancy without paying a penalty. You have to take the contribution for at least five years or until you turn 59½ or face a penalty. Consult a tax professional before making a withdrawal to ensure you're taking the right amount. 
  •  Higher education. Qualifying education expenses--such as tuition, books, supplies and housing--for yourself, spouse, child, or grandchild are penalty-exempt. The withdrawal could affect your child's eligibility for financial aid, however. 
  • Medical expenses. If the unreimbursed expense exceeds 10% of your adjusted gross income, you can make any early IRA withdrawal to cover it, as long as you do it in the same year you incurred the expense (U.S. News & World Report Sept. 23).
  • Health insurance premiums. If you've received unemployment compensation for 12 consecutive weeks, you're eligible for penalty-free withdrawals to cover the amount you paid for health insurance to cover you, your spouse, or children.
  • Home purchase. You can take out $10,000 ($20,000 for couples) to purchase, build, or rebuild your first home or the first home of a child, parent, or grandchild. The home must be a primary residence, and you cannot have owned for at least two years before the sale.
  • Military service. Any military reservist called to active duty for at least 180 days or for an indefinite period of time can take penalty-free withdrawals.
Your credit union IRA specialist can help you sort out IRA withdrawal options, as well as help you consider possible alternatives. For related information, read "What to Do When You Inherit an IRA" in the Home & Family Finance Resource Center.
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