How to Avoid an IRA Early-Withdrawal Fee

These exceptions to the rule can save you money

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If you’re facing an extreme emergency and you have no other choice but to tap into your IRA, you might be hesitant because of the tax consequences. Generally, withdrawing funds before age 59 ½ will cause you to get slapped with a 10% penalty. In addition, financial advisers do not recommended raiding your retirement account prematurely due to the loss in gains.

However, The Wall Street Journal reports that sometimes it’s possible to avoid the penalty. There are some exceptions.

1. You experienced a job loss and collected 12 consecutive weeks of state or federal unemployment. In this situation, you are permitted to withdraw money from an IRA penalty-free to pay for health insurance premiums, regardless of your age.

2. You need to finance qualified higher education expenses for yourself, spouse, children, or grandchildren. The funds can be applied toward either a traditional college or career school. Your spouse’s grandchildren are also eligible to receive funds from your IRA. Qualified higher education costs include room and board, course-related books, and student activity fees (but only if these expenses must be paid as a condition of enrollment or attendance).

3. You want to purchase, build, or rebuild your first home. Individuals are allowed to borrow up to $10,000 and couples can borrow up to $20,000.

4. You need to pay for unreimbursed medical expenses greater than 10% of your adjusted gross income. In addition, if you become disabled before you reach age 59 ½, you are entitled to borrow from your IRA without penalty.

Read the full article here.

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