Eight ways to get Money from an IRA penalty-free

When you lose your job or have unexpected expenses, unless you have a substantial emergency funds you are left scrambling for funds to cover life’s emergencies, and money in IRAs is an obvious target.

Funds withdrawn from an IRA are taxable, and if you are under 59-1/2, you also will pay a federal penalty of 10% and possibly a state penalty as well.

Withdrawing funds early from your IRA will reduce your standard of living in retirement, so we hope you never have to withdraw funds early.  But if you do, here are eight ways to beat the early-withdrawal penalty for funds in an IRA (though the income taxes are inescapable).

1. Annuitize

Under IRC Sec. 72(t) you can avoid penalties by taking a series of substantially equal periodic payments until you are 59-1/2 (but not less than five years). To estimate how much you can withdraw each year, use the 72(t) calculator at Bankrate.com.

2. Buy a home

If you haven’t owned a home for at least two years, you can withdraw up to $10,000 to buy a house in your name or in the name of a spouse, child or grandchild.

3. Pay for education

You can withdraw funds for college tuition and related expenses (books, materials, fees) for yourself, your spouse, children or grandchildren Certain income limits apply.

4. Cover medical expenses

You can withdraw from your IRA penalty-free to the extent that your medical expenses exceed 7.5% of your income. The expenses can be for you, a spouse or a dependent.

5. Pay medical insurance premiums

If you get unemployment compensation, you are eligible to withdraw funds to pay for your medical insurance premiums, as long as you’ve been unemployed for at least twelve weeks.

6. Pay back taxes to the IRS

If the IRS has placed a levy against your IRA, you can withdraw funds to pay the back taxes.

7. Disability

If you are “totally and permanently disabled” by IRS definition, you can take distributions from your IRA without penalty.

8. Death

If you die, your beneficiaries must begin taking distributions from your IRA, but there will be no penalty when they do so.

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