You’ve worked hard to save money in your IRA. And while you’ve been hoping that money will last you into retirement, there may be instances where you’re thinking about withdrawing your savings early. Most of the time, an early IRA withdrawal will result in a 10% penalty. But if you make a withdrawal for one of these 7 reasons, you’ll be able to access your savings without an additional fee.
1. Death
Starting with the most obvious, if you pass away before your retirement age, your beneficiaries can liquidate your IRA account without incurring a penalty. However, if your beneficiaries roll your funds into another retirement account, this rule may not apply.
2. First time home purchase
As a way to incentivize new home buyers, you can withdraw up to $10,000 for a down payment toward a new home. Keep in mind, this is only available to first time home buyers and the limit is strict, so if you withdraw past the $10,000 amount, you’ll have to pay a penalty on the additional withdrawal.
3. Unreimbursed medical expenses
If you’ve ever had an unexpected medical expense, you know that it can get costly. If your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI), you’ll be able to withdraw funds from your IRA to cover the extra costs without having to pay an early withdrawal penalty.
4. IRS levy
If, for whatever reason, you owe the IRS money and you are subject to a levy, your IRA money can be used to pay off your debts. Keep in mind that any withdrawal must be used to pay the levy in order to qualify for a penalty-free withdrawal.
5. Birth or adoption
Hospital fees, doctor’s visits, and adoption expenses can all add up. That’s why the IRS offers up to a $5,000 penalty-free withdrawal per parent for the birth or adoption of a child. This benefit lasts up to one year from the date of birth or adoption.
6. Military active duty
As a military reservist, you may get called up to active duty at any time. This will require you to leave your job (temporarily or permanently) and lose potential wages that you could be earning. If you’re called up to active duty for 180 days or more, you can withdraw money from your IRA to pay for expenses and avoid a penalty.
7. Expenses after job loss
If you’ve lost your job and are unemployed for more than 12 consecutive weeks, your IRA can be used to pay for your healthcare insurance premiums, along with the premiums of your spouse and dependents. If the job loss was a result of a permanent disability that prevents you from working, you can withdraw IRA funds without any penalty to pay for living expenses.
Use your money when you need
Life doesn’t always go as expected. And even if you planned to grow your retirement savings as you age, there are still plenty of reasons why you might need to withdraw funds early. It’s good to know that if you need money for any of these reasons, you don't pay a penalty for accessing your money. After all, you’ve worked hard to save for the future, and sometimes your plans change.