Ten Percent Penalty Exceptions

What is this 10% early withdrawal penalty that I’ll leave it that we’re referring to and what are the different exceptions to it? When you have a retirement account, IRA, then you’re required to wait until age 59.5 before you start taking withdrawals from that retirement account. And if you were to take withdrawals from that IRA prior to 59.5 then there’s a 10% early withdrawal period that you face. But there’s a few different exceptions to that rule. And so I want to walk through those with you here. First would be medical costs. Maybe an excess of 10% of your adjusted gross income. So if you have major medical costs then that might be a way where you could access those retirement accounts without incurring a 10% penalty. Or what about if your health insurance premiums, if you’ve been unemployed for 12 or more weeks might be a situation. As well as if you’re on disability and with this you would need a Physician to essentially declare that this is going to be a long-term or permanent disability which would again then maybe free up the opportunity to access those retirement accounts early. What about an inherited IRA for a non-spouse? So if say a parent or grandparent passed away and you inherited an IRA that goes into a beneficiary IRA or inherited IRA, that then allows you the ability to take withdrawals from those accounts over a period of years and not incur penalties. What about 72T distributions? This is a series of substantially equal periodic payments that need to last for a minimum of five years and there’s different calculations that are factored into this, but where you can take these equal payments over a timeframe prior to age 59.5 and extend on beyond that at a minimum of five years to again avoid that penalty. What about for higher education? So this might be for you, your spouse, children, grandchildren. And you must be at least a half time student. But it can be used for books, room and board, different fees, etc. First time home buyers, each spouse can take $10K for the purchase of a home. What about qualified military reservist that are called into active duty? Again an opportunity where you can access those funds. Or maybe if you retire after age 55 and have access to your 401K to take withdrawals or maybe for governmental employees, the defined benefit plans that they have maybe after age 50. So there’s a number of different ways that you can look at this. You can look into IRS publication 590B if you really want to dive into this a lot deeper. But again, it’s one of those areas that if this is a concern for you, then please reach out to us. We’d love to talk through that with you.