Keep your 10 percent.
Withdrawals from individual retirement accounts before age 59 1/2 typically trigger a 10 percent early withdrawal penalty. However, there are several exceptions to the penalty if you meet certain circumstances or spend the money on specific purchases. Here are 10 ways to avoid the IRA early withdrawal penalty:
Turn age 59 1/2.
Once you turn age 59 1/2, you can withdraw any amount from your IRA without having to pay the 10 percent penalty. But regular income tax will still be due on each withdrawal. Traditional IRA distributions are not required until after age 70 1/2.
Medical expenses
IRA distributions used to pay for medical expenses that are not reimbursed by health insurance and exceed 10 percent of your adjusted gross income are not subject to the early withdrawal penalty.
Health insurance
If you lose your job and collect unemployment compensation for 12 consecutive weeks, you can take penalty-free IRA distributions if you use the money to pay for health insurance for you or your spouse or dependents.
College costs
Penalty-free IRA distributions are allowed to pay for college, including tuition, fees and supplies. Room and board are also qualifying expenses for at least half-time students. However, withdrawals for this purpose could reduce your eligibility for financial aid.
A first home purchase
You can withdraw up to $10,000 ($20,000 for couples) from an IRA to buy or build a first home without incurring the early withdrawal penalty. To qualify for the exemption, you must not have owned a home for the two years preceding the home purchase.
Disability
People with severe physical and mental disabilities who are no longer able to work can take IRA withdrawals without penalty if they can get a physician to sign off on the severity of the condition.
Military service
Members of the military reserves who take an IRA distribution during a period of active duty of more than 179 days do not have to pay a 10 percent penalty on the amount withdrawn.
Set up an annuity.
IRA withdrawals taken as a series of annuity payments are not subject to the early withdrawal penalty. The use of an IRS-approved distribution method based on your life expectancy and at least one withdrawal annually are required to avoid the penalty.
Withdraw from a Roth IRA.
You may be able to withdraw your contributions, but not the earnings, from a Roth IRA account that is at least five years old without incurring the early withdrawal penalty.
Leave the money in a 401(k).
Workers who leave their jobs in the year they turn 55 or older can withdraw money from their 401(k) without having to pay the 10 percent penalty. But if that money is rolled over to an IRA, you will have to wait until age 59 1/2 to avoid the penalty, unless you qualify for one of the other early withdrawal penalty exceptions>
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10 Ways to Avoid the IRA Early Withdrawal Penalty originally appeared on usnews.com
