As the ongoing recession has crippled the finances of so many families, millions of Americans have watched their savings evaporate and their dreams of retirement vanish overnight. In this desolate economic climate, many people who hold individual retirement accounts (IRAs), through their employer are wondering if they can access these funds before their retirement without incurring penalties. Amidst the nationwide legislative wrangling over banking regulations, taxation codes and other financial intricacies, this question may seem unanswerable but there are actually straightforward answers which you can take advantage of. If you are searching for a way to withdraw money from your IRA early without incurring penalties, pay close attention to the following description of the requirements for this prudent financial maneuver.
First of all, when you eclipse the age of 59.5 years you are automatically eligible to make an early withdraw from your IRA account. If you have not reached this age plateau, however, you will be subjected to a 10% tax on any IRA deductions. As is usually the case with tax law, there are a few key loopholes to the early IRA withdrawal rules which you should be mindful of should you elect to tap your retirement funds early. If you are paying college expenses for yourself, your children or your spouse, an early IRA withdrawal is deemed acceptable. Medical expenses which total in excess of 7.5% of your gross adjusted income, as well as the first purchase of a home up to $10,000, also fall under the non-taxation provision of the IRA codes. If you experience a sudden disability which requires substantial financial outlay, you may utilize your IRA funds early no financial penalties.
Most IRA accounts contain so called “take back” provisions which allow you a onetime only withdraw of any funds you have willingly added to the retirement account. When you elect to “take back” a portion of your IRA account, the withdrawal must be made before the federal deadline for filing taxes in order to avoid penalties for early deduction. Before considering this move, be sure to consult a qualified financial consultant or certified tax professional to determine that you meet the Internal Revenue Service’s strict early withdrawal requirements.
If you desperately need to tap into your IRA account early, but cannot afford to forfeit 10% of your funds in penalty taxes, you might consider the “substantially equal periodic payment” process. This risky financial decision directly involves the IRS to determine the exact amount you should receive, based on a number of factors including life expectancy. You then must withdraw this predetermined amount each year, no matter if your financial circumstances improve, which means you are locking yourself into a payment plan for life. This controversial process has its merits, but for anyone under the age of 50 it is not preferable because there is no going back. When it comes to withdrawing from your IRA early, there a several avenues to consider, so take your time and make the best decision for your situation.
Danielle Mont is a contributing writer for PayWeb, which handles all payroll related services online for business of all sizes. Check out Canadian Payroll Services for additional information.
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