Can I withdraw money from my retirement accounts prior to age 59 ½ and avoid tax penalties?
Under limited circumstances you can withdraw money from certain accounts and avoid the 10% early withdrawal penalty. It is important that you work with your Certified Financial Planner™ or tax accountant to confirm that you qualify for one of the exceptions prior to taking a distribution.
- For a Qualified Plan, exceptions to the 10% early withdrawal penalty are:
- Distributions upon death or disability of the participant;
- Distributions after separation from service that are part of a series of substantially
equal periodic payments over the life of the participant or the joint lives of the
participant and the beneficiary;
- Distributions after the participant's separation from service, provided the participant
reached age 55 before separating from service;
- Distributions to a non-participant under a qualified domestic relations order
- Distributions not exceeding deductible medical (determined without regard to whether
deductions are itemized);
- Certain distributions by ESOPs of dividends on employer securities;
- Distributions made on account of the IRS's levy against the participant's account;
- Qualified hurricane distributions;
- Qualified reservist distributions; and
- Certain loans from the Qualified Plan.
- For an IRA account, all of the exceptions listed above apply, except #3. There are
also some other exceptions to the 10% early withdrawal penalty that apply to IRA's
only:
- Distributions used to pay medical insurance premiums of unemployed individuals;
- Distributions used to cover qualified education expenses for you, your spouse, child
or grandchild;
- Distributions of up to $10,000 in your lifetime to cover First-Time Homebuyer Expenses;
and
- Distributions representing the return of non-deductible contributions.
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