Avoiding Early Withdrawal Penalties
If you withdraw money from an IRA (individual retirement account) prior to age 59 ½, there is a 10 percent penalty assessed in addition to the income tax due on the withdrawal. However, if you strategically plan, there are ways to avoid the early withdrawal penalty.
Education Costs: You can avoid the penalty if you use the IRA funds to pay for tuition, books, fees, or room and board. The education expenses can be for you, your spouse, your children, or even your grandchildren.
First Time Home Owners: Do not let this phrase fool you. The IRS considers a first time home owner if you did not own a principal residence within the two years prior to purchasing a home. The IRS allows you withdraw $10,000 per taxpayer for this purpose.
Health Insurance: This is available to taxpayers who experienced unemployment for a period of at least 12 consecutive weeks. You must withdraw the funds from your IRA within 60 days after you have been reemployed.
Disability: A physician must determine this to qualify.
Set Up An Annuity: A series of annuity payments using an IRS-approved distribution method will help you avoid the penalty. You must have at least one withdrawal annually.
Military Service: The withdrawal must occur during a period of active duty.
Principal From a Roth IRA: You can withdraw the principal from a Roth IRA if you have owned the plan for over five years.
There are exceptions to many of the strategies mentioned above. Before considering an early distribution from an IRA, it is best practice to consult with a tax professional.