IRA plans can become the reliable source of income in your old age. It is very important to consider such plans when you are planning for your retirement. Many have rightly chosen this plan to help them in their future in the form of a savings plan. But sometimes situation drives us to need money in emergencies. You cannot withdraw from your IRA account without paying penalty of heavy amounts. In some cases, you can avoid paying such penalties.
How to avoid the PENALTY?
The tax code permits taxpayers to avoid paying early withdrawal penalty in varied cases. It means if you come under one in every of the seven categories, you can just pay the federal and state tax on the money you are taking out of your IRA, and you are not subjected to extra 100% penalties otherwise assessed by the office.
Here are the seven categories through which you can avoid the penalty:
- Dismissed paying Medical Insurance:
Losing your job can be very stressful, both financially and emotionally. But you can get help in the form of your IRA account. If you have been dismissed for quite some time, you can use your IRA to continue paying your medical insurance premiums and avoid the ten early withdrawal penalties.
- First-time home buyer:
If you utilize your IRA cash to get the acquisition price of your first home, you can be penalty free. To qualify, the funds you are taking out should be used to pay qualified acquisition prices at intervals of one hundred twenty days once you withdraw the money. And it should be used to pay qualified acquisition prices for the home of a first-time buyer like you. This exemption applies to most withdrawal. In addition, you are able to just use this exemption once in a while.
- Payment of un-reimbursed medical expenses:
In case of medical trouble that ends up in un-reimbursed medical prices, the office can waive the first withdrawal penalty if those expenses are in far more than 7.5 % of your adjusted gross financial gain.
- Educational activity prices:
If you want to withdraw money out of your IRA account to get an educational degree either for you or your spouse, your kids or your grandchildren, you don’t have to pay any type of penalty fees.
- Permanent incapacity:
Money that is withdrawn from IRA account when the IRA owner becomes permanently disabled is protected of the penalty fees.
IRA account holders, who die before reaching their retirement age, won’t be fined with the withdrawal penalty fee.
- Payment of Back taxes:
If you owe some money in case of your tax dues and a levy has been placed against your IRA, the government won’t assess 100% penalty on the amount of money you are taking out from the IRA to pay back those back taxes.
If you use your IRA, you don’t have to be subjected to early withdrawal penalties. So, don’t rush to pay the penalty fees before you examine your situation.