There are several different situations you may find yourself in that require you to make a withdrawal from your retirement fund much sooner than you ever thought you would need to. While this is something that you can certainly do, you need to know that there are some repercussions that come with it. Knowing what will happen when you make an early withdrawal can help you decide if that is something that you are ready to do or now. But before you move forward, Mark Dicus & Company would like to talk about some of the different scenarios that put people in a position where they may want to withdraw from their retirement fund, and what they can expect to happen as a result.
How Can I Withdraw My Retirement Money without Penalty Early?
A question that we are often asked is, “what happens if make an early withdrawal from my retirement fund?” The answer to this and most questions in tax law is, it depends. Generally speaking, any withdrawals from your retirement plan before the age of 59 and a half and you will pay the taxes plus a 10% penalty. There are some exceptions. Below are 9 exceptions to the 10% penalty.
1- First-time homebuyers: From an IRA, and not a 401K, you can take out $10,000 as a down payment for our first-time home purchase.
2- Disability: If you are permanently and totally disabled, you can dip into your retirement account without a 10% penalty.
3- Death: If an account holder dies, the beneficiaries can receive a distribution from that account without a penalty.
4- Health insurance premiums: If you’re unemployed for 12 weeks.
5- Unreimbursed Medical Bills: The Internal Revenue Code allows you to pay medical bills that exceed 10% of your adjusted gross income, but the withdrawal must be made in the year that the medical bills are paid.
6- Higher Education Expenses: Same as with first time home purchases, you can withdraw for higher education expenses from your IRA, however from a 401K you will be subject to a 10% penalty. The education expenses can be for you your spouse your children, grandchildren, and immediate family members.
7- If You Owe the IRS: Pay taxes owed to the IRS.
8- For Income Purposes: Section 72(t) of the tax code allows investors to take money out of their retirement plan for income, with restrictions.
9- Here is the million-dollar question, can I pull money from my retirement account to start a business? With proper planning yes! It may also be tax deferred. This is a complicated concept that we would be happy to consult with you over the phone or at one of our two offices.
Tax Filing, Bookkeepers, Accountants & More in Summerlin, North LV, Henderson, Lone Mountain Village & Greater Las Vegas, Nevada
We must stress that penalty free, is not tax free. Contact our office for more information regarding your specific situation. At Mark Dicus & Company, we have the knowledge and experience needed to help you navigate any questions you may have about your retirement fund and the rules and regulations regarding it. Call us today!