Most of the IRA holders know that they can incur penalty fees when untimely distribution is carried out. The good news is that there are a number of strategies to prevent these fees when a financial difficulty or other qualifying life events occur.
Before anything else, you should remember that with these retirement allowances, it is important that you don’t take your retirement account contributions early, particularly if you are still young. By choosing an IRA hardship withdrawal, you are mislaying tax-free compounding on your account, which may grant you hundreds of thousands of money to cover your retirement expenses.
How to Avoid 10% IRA Fees
- Disability of the IRA Owner – The funds can be distributed without penalty fees in case the IRA owner becomes disabled permanently.
- Death of the IRA Owner – While this may appear as a little consideration, but if you withdraw the account assets before you become 59 ½ years of age, your estate will not procure 10% early distribution penalty.
- Pay Non-Reimbursed Medical Expenditures – In case of severe injury or serious illness requiring expensive and prolonged medical treatment, the government will relinquish the early distribution fee, provided that the expenditures are more than 7.5% of your AGI or adjusted gross income.
- Distributions for First-Time Home Purchase – While there is a lifetime limit amounting to $10,000; this exception will make it almost effortless for an IRA holder to purchase a house.
- Pay Higher Education Fees – No doubt, college education is costly. But thanks to the IRA, the higher education payment of your children, grandchildren, or even your spouse can be acquired from IRA free from penalty. Though you will still pay for the federal income tax, this is a good way to secure your loved ones’ future.
- Pay Back Taxes to the IRS – Once a levy is placed against the Individual Retirement Account, although this is not the type of exemption that you desire to qualify, this may save you significant amount of money when you’re in a prickly position with the Internal Revenue Service.
- Distributions for Medical Insurance Premiums – If you are currently unemployed, you will not get any penalties if you utilize your retirement funds to cover your medical insurance provided that you have been out of job for more than twelve weeks.
- IRA Owners Becomes 59 ½ Years of Age – The most excellent way to take advantage of the best IRA rates is to wait for the qualifying age of 59 ½ before doing a withdrawal.
Whether you are keeping a Traditional IRA or no fee Roth IRA, you should learn about a caveat on the exemptions; the owner of the IRA must go through the five year waiting period, which is measured not in calendar years, but in tax. For instance, an investor may not house $3,000 in their retirement account this year and distribute it next year free from penalty though it would otherwise appear as an exemption.