401k
401k Information

Withdrawal From Ira

Tax Court Rules on 72(t) Case-72t Exception on Education

When an investor opens a 72(t) plan, they are not allowed to make any modifications to the plan. However, a recent ruling in the U.S. Tax Court may change the current flexibility IRA owners now have. The Court ruled that a particular 72(t) plan was not modified when the owner of the IRA withdrew additional distributions for education expenses. When the owner did this, the IRS sought a 10% early withdrawal penalty, based on IRA withdrawal rules, but the Court overruled this and ruled in favor of the IRA holder. In the future, this ruling may aid other IRA owners who are in need of funds for specific purposes. As of now, there is no way for us to know if the IRS will follow the Court’s ruling in other cases.

72(t) Plans and 3 Methods: RMD, Annuity Factor, Amortization

If you are younger than 59 1/2, the 72(t) plan can be a huge benefit if you need to access the funds in your IRA without incurring the 10% penalty that is incurred for early withdrawing from the account. If the owner of the IRA knows that they will need to access the money in their IRA account, they can set up a 72(t) payment plan which will eliminate the penalty associated with early withdrawal. A 72(t) plan can be used with an IRA, 401(k), TSA, 403(b) and 457 plans.

There are three methods used by the IRS to determine payment plans for a 72(t). These include the RMD, required distribution method, the annuity factor method and the amortization method. RMS methods are calculated in the same manner as they are if the owner were 70 1/2. Basically, the RMD calculation involves the account balance and the owner’s age. This method produces different amounts of payout each year. The other two methods used will have equal payments. All payments using these three methods are required to continue for a minimum of 5 years, or until the account holder reaches age 59 1/2. As long as the rules are followed, the account owner will not be subject to the 10% penalty.

An important thing to remember is that in order for individuals to qualify for the 10% penalty exception, they cannot change the account balance. They can continue to make distributions that are required but they cannot add funds or take any distributions that will exceed the calculated amount of the 72(t) plan. If the owner of the account is under age 59 1/2, they will be subject to the 10% penalty. They will also incur interest.

72(t) Exceptions to the 10% Penalty for Early Withdrawal

Now that we have covered how the 72(t) plan can save you from the early withdrawal penalty, let’s discuss other ways to become exempt from the penalty. If you are a first-time home buyer, you will be exempt from the penalty. If you are withdrawing the money for educational expenses, the penalty will not be incurred. As long as certain conditions are met, you will not incur the penalty if you use the money for medical insurance. If the owner of the account is younger than 59 1/2, and they take a distribution based on one of the mentioned expenses, he or she will not be subject to the 10% early withdrawal charge, as long as you adhere to IRA withdrawal rules.

72(t) Plan Pros & Cons

Now, more than ever, individuals are finding that they need to tap into the funds in their IRA retirement accounts. For most people, this could mean paying IRA penalties for early withdrawal. The best way to avoid the penalty is by setting up a 72(t) payment plan. While 72(t) plans sound great, there are some negative factors involved. For most people, the payments will be a fixed amount. If the plan is modified after it is set up, the account holder may face serious consequences. These payments may have an enormous effect on the value of the account. This could lead to having less money to live on later in live. However, the 72(t) plans do provide great flexibility. Many people are finding that they are in need of financial aid and have no other choice than to tap into their IRA retirement account. As long as the funds are used for medical insurance, buying your first home or paying education expenses, you will not incur the 10% penalty. These are the only exceptions to the penalty rule. The only other way to access your funds is to set up a 72(t). When you reach the age of 59 1/2, you will be able to get distributions from the IRA account without the early withdrawal penalty. A 72(t) is not for everyone. It may be better to split your current IRA and open a second account.

Frequently Asked Questions

  1. QUESTION:
    What is for first-time homeowner – withdrawal from IRA or loan from 401K?
    I can borrow ,000 from my 401k for my new home. What I am wondering is – is it better to borrow ,000 from my 401k and then take an early withdrawal ,000 from my Roth IRA, or is it better to borrow ,000 from my 401k? It is a first home so there should be no tax penalties associated with either method.

    Thanks -

    • ANSWER:
      Depending on how long you’ve had the Roth IRA, you may be able to withdraw some or all of that without paying taxes.

      Since the ,000 is being borrowed from you and payed back to you (with interest), I’d go that route, unless you can withdraw the ,000 tax-free from the Roth. Then it is your call :-)

      The other consideration is the monthly payment – you’d reduce your monthly repayment by around 0 if you can withdraw the ,000 from your Roth tax-free.

      Best wishes!

  2. QUESTION:
    How can I make an early withdrawal from my ira while living in another state?
    I’m living in another state, my IRA/CD is the original state (if that makes any sense). How can I make a withdrawal without going back to that state?

    Yes, I know about the tax implications, fees, etc.

    Thank You

    • ANSWER:
      You need to contact the bank where you have the IRA. They should be able to let you do the withdraw long distance.

  3. QUESTION:
    I did a withdrawal from my SEP IRA this year?
    I did a withdrawal from my SEP IRA. The thing is that my family claims my taxes and I dont want them to find out I withdrew from my SEP IRA. Can i claim these taxes in another way?

    • ANSWER:

  4. QUESTION:
    On an early withdrawal from an IRA, does the IRS assess the 10 pct fine on the gross distribution or on net?
    - that is, on the net after the taxes have been paid?

    real life example that is promting the question is this:

    We need to make a withdrawal on our IRA to pay for ,500 of college costs, which happen to be allowable use of that money.

    The question is: how much do I reques tto be taken out – what should my gross distribution be while still having enoug to pay for taxes ? We are in the 15 pct tax bracket.

    • ANSWER:
      It partly depends on what type of IRA you opened. There is the traditional or the Roth. If you have a Roth then you don’t have to pay further taxes. I’m assuming you have a traditional though. In that case you would be taxed at your income bracket. Be careful though because the extra withdrawal may be enough to push you into a higher tax bracket. At 15% though you should pull out ,530.

      The calculation works like this:

      Gross withdrawal = ,500 / (1 – tax bracket)

      @ 15%
      Gross withdrawal = ,500 / (1 – .15)
      Gross withdrawal = ,530

      If your tax bracket will increase use the formula above that.

      You might want to call someone with the IRS as well to confirm that. I’m not a tax accountant, just a guy. Visit IRS.gov and find a contact.

  5. QUESTION:
    Withdrawal from IRA at age 61?
    I made a withdrawal from my IRA at 61 but no taxes where taken out. Now that I’m filing for taxes, I’m aware I should pay taxes but should I pay any penalties for this withdrawal?

    • ANSWER:
      You pay taxes on the withdrawal as ordinary income. There is no penalty for the withdrawal.

  6. QUESTION:
    Can your repay a withdrawal from a rollover IRA to avoid penalties?
    I need to take some cash from my rollover IRA and was wonder what the rules are regarding repayment. If I take out 00 but the put 00 back in say the next 12 months, can I avoid penalties or at least avoid the income tax?
    The distribution would be to cover a shortfall caused by my extended maternity leave (which was last summer) and recurring illness. The illness qualifies as a disability according to SSA but I am not willing to give up and stay home yet, so I don’t think I could take a disability distribution.

    • ANSWER:
      You can withdraw funds from your IRA for up to 60 days tax-free. It’s really important to remember that you have to repay the funds within 60 days to avoid paying income tax and the 10-percent early-withdrawal penalty.

      If you have more than one IRA, you can only make a withdrawal once within a one-year period from each IRA.

      There are exceptions, however, if you’re withdrawing for a first home purchase, certain medical expenses, college expenses, etc. These are very limited exceptions, so I’d need to know more info before giving an accurate answer on these exceptions.

  7. QUESTION:
    Is the 10% penalty on an early withdrawal from an IRA tax deductible?

    • ANSWER:
      No, these penalties are not deductible. You will pay the ten percent penalty on any early withdrawals, and will also report the early withdrawal as taxable income for the year in which it was withdrawn.

      Accordingly, if you are in a 25% income tax bracket, your net tax loss on this early withdrawal will be 35% of what you withdraw.

  8. QUESTION:
    what is the penalty for early withdrawal from an IRA for an indidual over 60 years of age.?
    I am 63 yrs of age and considering depositing to an IRA to withdraw it next year when my income will be greatly reduced

    • ANSWER:
      I’m surprised no one has answered this yet. penalty for early withdrawl is if you take out before you are 591/2 At your age t here is no penalty. Just pay on withdrawls as ordinary income. It doesn’t matter if the IRA was only open a short time.

  9. QUESTION:
    What happens if you withdrawal early from a Roth IRA?
    A traditional IRA or 401k seems easy to understand. If you take out money early, you pay a hefty tax.

    But what about a Roth IRA? If I pay taxes at the time of contribution for a Roth IRA, then decide to take out money early, do I get hit wit the same big tax?

    In other words, is it worse to withdrawal early from a Traditional or Roth IRA?

    • ANSWER:
      If one withdraws money form ANY qualified retirement account before 59 1/2 or official retirement, there is a 10% penalty on the amount withdrawn, plus ordinary income tax on non Roth income.

      After 5 years, you can withdraw up to 100% of the PRINCIPLE (the cash you put in the account) in a ROTH IRA ONLY at anytime with NO penalty. Best to try and keep it in if all possible – it should be geared for retirement only.

      The INTEREST or any GAINS MUST stay in the ROTH account until at least 59 1/2 or suffer IRS 10% tax penalty on the gains only, plus pay ordinary income tax on the entire gain that was withdrawn.

      Exception:
      ,000 may be taken out to buy a first home with no penalty. Certain health care, and high education expenses are also exempt from penalties.

      Other exemptions and taxes
      Additional Tax on Early Distributions

      http://www.irs.gov/publications/p590/ch02.html#en_US_publink1000231064

      How much will my 401K cashout tax be?

      http://answers.yahoo.com/question/index?qid=20090303111950AAijAaE&r=w&show_comments=true&pa=FZB6NWHjDG3N56z6v_2wXVTV6igbwQuehdgfQCGq2KUvXhjrBd.HQA–&paid=add_comment#openions

      Which is better?

      In my view, the ROTH offers greater long term flexibility by allowing access to your principle after 5 years where the Traditional IRA does not.

      Next, when you think 10, 20, 30+ years of growth and NOT having to pay ANY taxes on a ROTH at retirement (min age: 59 1/2), the NET growth potential of the ROTH is effectively greater because the Traditional IRA will be 100% subject to income tax in the future at whatever tax rates Congress decides.

      Example:
      Value of IRA in 20 years: 0,000
      Value of ROTH IRA in 20 years: 0,000
      Federal Tax bracket in 20 years: 20% (hypothetical)

      If take out all money at once: (normally some funds taken out each year not before 59 1/2 and not later than age 70 1/2 – minimum withdraws required by 70 1/2 – determined by a life expectancy formula – “actuary table.” – don’t need to know all this now, because the formula will change in the future.)

      Federal Tax on IRA: ,000 (20% tax bracket)
      Federal Tax on ROTH: [FAQ-ANSWER].00 (any tax bracket)

      State Tax on IRA: (depends on your state)
      State Tax on ROTH: 0%

      Best:
      Max out ROTH IRA each year. Even if you quality for the little tax deduction on the Traditional IRA with your current taxes, it will cost you more money in terms of paying more taxes in the future when the money comes out. ROTH IRA avoids the government from taking your money again in the future.

      Roth IRA

      http://en.wikipedia.org/wiki/Roth_IRA

      Roth IRAs (IRS.gov)

      http://www.irs.gov/publications/p590/ch02.html

      The aforementioned should not be deemed as tax, legal or financial advice, please see profile for full disclaimers.

      http://profiles.yahoo.com/u/CUXTCCBSBYDZODXWGYK2IZDOOI

  10. QUESTION:
    withdrawal from Rollover IRA b/c unemployed — avoid taxes/penalty?
    In 2007 I withdrew from my Rollover IRA because of unemployment…(still had bills to pay!!!)

    Can I avoid paying the 10% penalty and 25% taxes??

    • ANSWER:
      There are exceptions to the %10 penalty but unemployment or paying bills arent one of them. I would read the exception rules in pub 590. The most common exception is disability, but there are others such as buying a 1st home, or buying medical insurance and medical expences.

      Even if you aviod the penalty, you will still have to add the amount to your income and pay tax on it.

  11. QUESTION:
    Early withdrawal from IRA used for a first-time home purchase, I need some guidance?
    I took out some money from an IRA in 2006. I used it to purchase a home. However, the home is actually not in the United States. However, my name is on the title and some family members are living in the home currently. It is my first home. I am wondering, is this a qualified home purchase for an early withdrawal of an IRA, so that I don’t have to pay the penalties? It was a Roth IRA, so in theory, I should not have to pay anything on this to the IRS.

    Now the IRS is writing me telling me that I owe a bunch of money.

    I hope someone can help me. All of the guidance that I found online seemed very vague as to what kind of a home purchase qualifies for the early withdrawal.

    • ANSWER:
      When you took out your money in 2006, you needed to report that on your tax return. You received a 1099R for the distribution. It was probably coded for an early distribution of a Roth IRA.

      The IRS does not know how much of that distribution is the return of you contribution, or if you have an exception to the penalty. Hence, the big tax bill.

      In order to figure the penalty on the distribution, or to document that no penalty applies, you need to fill out Form 5329. If you purchased a first home that was the main home of yourself, spouse, child, grandchild, parent, or other ancestor, you may escape the 10% penalty on ,000 of the distribution.

      If you did not follow the above procedure, you need to seek a professional tax preparer who can do an amendment for you.

      If you do not qualify to escape the 10% penalty, then you will owe a penalty on the distribution that represents earnings of the Roth IRA. Again, Form 5329 is required to figure the correct tax.

      Page 55 of the following publication explicitly defines what is a qualifying home purchase. There is no requirement that the home be in the United States.

      http://www.irs.gov/pub/irs-pdf/p590.pdf

  12. QUESTION:
    What is the best IRA? Roth? And whats the difference? And how does withdrawal from IRA work?

    • ANSWER:

  13. QUESTION:
    Early withdrawal from IRA for first home, BUT for finishing the home?
    This is my first home, got mortgage approx. 6mos. to 1 year ago (I should know that!), and I still have things that need to be finished. I understand you can withdrawal early from your IRA for a first home – ,000, but does that have to go right to the mortgage company or can I finish the house with the money? It would all be spent on the house, just not directly on the financing. Its just taking me longer than I thought to finish this darn thing – the kitchen, appliances, etc.!
    And think of this Mr. IRS man, all that money would help the economy! Home depot, sears, lowes… lol

    • ANSWER:
      IRS has no way to track exactly where the money is spent. BUT you have to buy a home in the year you take the withdrawal. Bottom line, if you bought a home in 07 you can’t take a tax and penalty free distribution in 08. If your IRA is of the Roth style, then you can take back your principal without tax or penalty.

  14. QUESTION:
    how to avoid penalty from early IRA withdrawal. I receive accidental disability pmts from city.?
    I have credit card debt of 14,000. Since 2003 I receive an accidental disability monthly payment from a city in Mass. This is my only income. Can I avoid a penalty if I withdraw funds from my IRA?

    • ANSWER:
      Exception 03 on the form 5329 is “Distributions due to total and permanent disability.”

      “You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.”

  15. QUESTION:
    Penalty on early withdrawal from IRA?
    I left my job voluntarily and was unemployed for 12 months.I elected to participate in cobra, can I
    use the cobra premiums I paid to lessen the 10% penalty. Or can I use the option to
    include all medical expenses plus ins. premiums less 7.5% AGI.to lessen the 10% penalty. I am under age 59.

    • ANSWER:
      Medical expenses in excess of 7.5% of your AGI can be used to offset your penalty. You will do so using form 5329. Cobra payments can also be used to offset the penalty but only if the funds come from an IRA.

  16. QUESTION:
    Can I make a withdrawal from my IRA?
    I’m unemployed and need some cash. Also, I own some stock that I want to sell but have no idea how to do it. Any suggestions? Thanks.

    • ANSWER:
      You can withdraw from your IRA at any time, but if you are younger than 59 1/2 then there will be a 10% penalty on any money you do withdraw. Plus if it is a traditional (not a roth) IRA you will also be taxed on the money as income. So figure if you pull out 00, there is a 0 penalty right off the bat, plus taxes will be another 0 or so, so your 00 withdrawl will be like 0. Avoid pulling out of an IRA if at all possible. Selling the stock might be better because depending on how long you’ve owned it (i think it is 5 years or more, but might only be a year of more) you may only be subject to capital gains tax which is at most 15% and no penalties. To sell it you have to contact the brokerage who holds it. That should be on a statement, or stock certificate, or something.

  17. QUESTION:
    early withdrawal from IRA?
    I just cannot seem to get ahead of the game and am swimming in debt. I took out a loan which helped with some and even tried debt consoildation but couldn’t afford the monthly payment. I’m thinking of withdrawing money from my IRA (not sure if some or all at this point) to pay off some debt). Is this a good idea? What are the reasons for early withdrawl without penalty?

    • ANSWER:
      If you are under 59 1/2 you would pay a penalty of 10% on the early withdrawal of the money from you IRA, and that 10% penalty would be on top of the regular tax you would be paying. There are exceptions to the 10% penalty and here they are:

      Exceptions to the Early Distribution Tax Penalties
      You do not have to pay the additional 10% tax penalty on your early retirement distribution if you certain exceptions.

      Exceptions for Early Distributions from an IRA:

      You had a “direct rollover” to your new retirement account,
      You received a lump-sum payment but rolled over the money to a qualified retirement account within 60 days,
      You were permanently or totally disabled,
      You were unemployed and paid for health insurance premiums,
      You paid for college expenses for yourself or a dependent,
      You bought a house*,
      You paid for medical expenses exceeding 7.5% of your adjusted gross income**, or
      The IRS levied your retirement account to pay off tax debts.

      Exceptions for Early Distributions from a Qualified Retirement Plan such as a 401(k) or 403(b) plan:

      Distributions upon the death or disability of the plan participant.
      You were age 55 or over and you retired or left your job.
      You received the distribution as part of “substantially equal payments” over your lifetime.
      You paid for medical expenses exceeding 7.5% of your adjusted gross income.**
      The distributions were required by a divorce decree or separation agreement (“qualified domestic relations court order”),

      * The home-buying exception has the following additional criteria: you did not own a home in the previous two-years, and only ,0000 of the retirement distribution qualifies to avoid the tax penalty.

      ** You do not need to itemize in order to claim the medical expense exception.

      If the exception is properly coded in box 7 of your 1099-R form, you do not need to fill out Form 5329. If an exception applies and is not recorded in box 7, then you need to fill out Form 5329.

  18. QUESTION:
    How do I make a hardship withdrawal from my IRA?

    • ANSWER:
      Trees is correct. You can avoid the early distribution penalty if you have qualified medical expenses that exceed 7.5 percent of your adjusted gross income.

      Another way to avoid the penalty is to take substantially equal periodic payments based on your life expectancy. However, if you are fairly young, this option is not going to give you very much money, unless you have a fairly large balance in your IRA.

      If your IRA is a Roth IRA, you can withdraw your contributions (but not the earnings) without paying taxes or penalties. With a Roth IRA, you have already paid taxes on your contributions.

  19. QUESTION:
    Early withdrawal from Roth IRA retirement account?
    I have a question about early withdrawal from Roth IRA account. I have been investing money from my Roth IRA account tax free for 3 months now, I see some growth in it, and plan to do more aggressive investment to grow the money…. I know it is not a good decision to make because I might lose them all, again, I am only 26, I afford to lose that 00 and start from scratch again…. Anyway, I plan to invest and grow my 00 to ,000 in 2-5 years. There are several exception to touch the IRA account without early withdrawal penalty and taxes such as, first time home purchasing, medical expenses, and education.

    Most of the time, when IRS, Accountant, Finance advisors explaining about early withdrawal from Roth IRA for education, only mentioned about college education for your kids. I am only 26 years old, single, and I do not have any children. Can I withdraw all ,000 from my Roth IRA account for my own education?

    • ANSWER:
      Get ready to take a serious hit on your taxes. You can alternatively borrow against that money so that you don’t have to pay taxes. You should talk to a tax accountant. That’s an easy question for them.

  20. QUESTION:
    how do I make a withdrawal from my 401k/IRA and how long does it usually take?

    I am not employed either. Do I get taxed or anything for taking money out? Is it considered a loan?

    • ANSWER:
      First, what is your hardship?

      http://www.guideto401khardships.com/

      Read through all this (including the links) carefully.

  21. QUESTION:
    can you make a withdrawal from a ira?
    can you borrow on an ira? are there penalties for doing this?

    • ANSWER:
      10% for early withdrawal and taxable income to you for a traditional IRA. For a Roth IRA, pay the penalty. There are some details, like if you return it within 60 days, you’re ok. Ask whoever holds your IRA what the consequences would be.

  22. QUESTION:
    If making an early withdrawal from an IRA account, do you pay regular tax and a 10% penalty?

    • ANSWER:
      Yes, if it is as regular IRA. If it is a Roth IRA, you would just pay the penalty.

  23. QUESTION:
    How are taxes calculated on a withdrawal from an IRA?

    • ANSWER:
      Assuming that it was a pretax IRA, all withdrawals are taxed as ordinary income the same as wages (10%-35%)

      If you are under 59.5, and don’t meet one of the exception rules, there is also a 10% penalty.

  24. QUESTION:
    Early Withdrawal From Roth IRA Question?
    The value of my ROTH IRA currently is less than what it was when I first opened the account. If I withdraw the money today, will I still be charged an early withdrawal penalty?

    • ANSWER:
      no. you’ve already paid taxes on your contributions. you can actually take your contributions out at any time for any reason completely tax free in a Roth. you only ever have to pay the penalty on earnings, which in your case doesn’t even apply.

      but i would suggest that you use this as a last resort. this is a retirement account. you can’t just put all the money back into it if you change your mind.

      there won’t be any tax penalties, but the opportunity cost will be huge.

  25. QUESTION:
    question regarding early ira withdrawal – if you withdraw 1,000 dollars from an ira before you are 59 1/2, say?
    in your 30s. you get penalized 10% for doing so right? in addition to this, are you further taxed on this early distribution? if so, how much more? are you taxed on this distribution as income at your tax bracket rate (example 28%) on top of the 10%? once all is said and done, for the average person making an early withdrawal from an ira of ,000, after taxes and penalties, what is left?

    • ANSWER:

  26. QUESTION:
    How much will a 00.00 withdrawal from an IRA affect my taxes?
    I’m unemployed and paying my own health insurance.

    • ANSWER:
      You’ll pay a 10% penalty of 0, plus it counts as ordinary income on your income taxes, which means that it could be taxed anywhere from 0% to 35% depending on your tax bracket.

      They will withhold 20% for income taxes when you take the distribution, so if you withdraw ,000, they’ll give you a check for 00 and send 0 to the IRS toward your taxes. This comes out correct if you’re in the 10% tax bracket (10% penalty + 10% tax). If you’re in a higher tax bracket, the 0 withholding won’t cover all of your tax liability from the distribution, so you need to plan for the coming tax bill.

      EDIT: As the first answer says, there may be an exception to the 10% penalty if you use the money for a qualified purpose, but I’m not familiar with those specifics, so if you think you qualify, you need to present the details of your situation to a tax pro for more detailed advice. The safe route is to assume the 10% penalty.

  27. QUESTION:
    Does the IRS tax withdrawals from IRA’s belonging to non residents?
    I lost my US residency.When I reach age 70 I will have been out of the USA for 15 years.The bulk of my IRA will be from capital gains.Will the IRS tax me?
    So I still havent had an answer.To put it another way.DOES UNCLE SAM TAX PEOPLE WITH NO REPRESENTATIVE IN CONGRESS?
    I bet he does.His morals have changed since the Boston tea party.

    • ANSWER:
      Withdrawals from traditonal IRAs are taxed as ordinary income. There is no citizenship or residency test involved. It doesn’t matter that the growth is in CG, it’s all taxed as ordinary income.

  28. QUESTION:
    Withdrawal from IRA account?
    I want to access my IRA account funds for use on rent deposit.
    This does not qualify for tax exemption and I will have to pay taxes.
    However, I understand that if I roll the withdrawal amount to another IRA, I will not be required to pay taxes.
    How do I do this?
    Do I have the CU send me a check in my name?
    Then deposit funds into the new IRA within 60days of the withdrawal?
    Thanks @acmeraven.
    I did rollover the funds from a 401k a new IRA but the check was written in the financial institution’s name.
    So I had to deposit it into the new IRA rollover account and was not able to access it.
    I need to access it and use it. I should be able to replace it within the sixty days.

    • ANSWER:
      this is really risky movement on your part but if you redeposit the funds back into the same account in the 60 day time limit, you may avoid the penalty et al
      you probably will have to request they not withhold any taxes, especially on the premise you intend to redeposit within the time frame

  29. QUESTION:
    Early withdrawal from Traditional IRA?
    Been voluntarily unemployed for 3 yrs. Single, age 53. Never collected any Unemployment insurance. Could I – should I – take early IRA withdrawal to cover my self-paid medical insurance ? And the unreimbursed medical expenses accrued so far this year, 2011 ? That is $ 2,400.00 per year. Thanks.

    • ANSWER:

  30. QUESTION:
    Can anyone tell me the penalty for early withdrawal from a simple IRA?
    Any information will help, I need to know how it will effect me when I file my taxes and what all the penaltys are.

    • ANSWER:
      Don’t do it if you can avoid it.

      You must pay the taxes as if it was taxable when you made the contribution, PLUS a 10% penalty on top of that. E.g. if that money would have been in the 28% bracket, you will be paying 38% on your money.

      There are a few reasons you can take money out (hardship, etc.) that avoid the penalty, but you must still pay the taxes.

  31. QUESTION:
    Can I use the First Time Homebuyer Exemption for IRA WIthdrawal for an Overseas Property?
    I am a US Citizen living and working in the United States.

    My mom and I would like to buy a property in Asia, under our joint names. Can I make a withdrawal from my IRA penalty-free and how would I do it?

    Thanks!
    I intend to move to Hong Kong in the future.

    • ANSWER:
      x

      it is designed for YOUR first time purchase, not your mom’s.

      Soccerref

  32. QUESTION:
    I am taking a withdrawal from my traditional IRA early (I’m 30), and am wondering how to deal with the taxes..?
    I elected to have them withhold 20% federal tax. Will that be enough? My wife and I make a combined ,000/year, and live in Idaho. Anything I am missing? Anything I’ll need to watch for when i file my taxes in April?
    Thank you!

    • ANSWER:
      No that won’t be enough. Don’t forget the 10% penalty for withdrawing retirement funds before age 59 1/2.

  33. QUESTION:
    withdrawal from IRA at 55 ?
    If I am 55 and not working (retired) how much can I take out of my IRA before 59 1/2 without penalty ? I understand I can set up an account with equal payment until I reach 60.

    • ANSWER:
      Either you set up the 72(T) (periodic payments for 5 years) or you pay a penalty. The amount you can take is based on your life expectancy and the balance in your IRA account. Your trustee can help you.

      Helen, EA in PA

  34. QUESTION:
    Do mandatory withdrawals from IRA accounts have to be done during certain months of the year, or?
    can the withdrawal be done any time during the year?

    • ANSWER:
      I believe that the year you reach 701/2, let’s say that is in 2007, you have until April 15th of 2008 to make the withdrawal based on your IRA total as of 12/31/2006. You then must make another withdrawal based on you 12/31/2007 IRA total by 12/31/2008. So, that is two in the same year which could cause you to pay a higher tax rate. So you may wish to make the first one in the year you actually reach 701/2.
      After that, you have until 12/31 to make the withdrawal based on the prior year end IRA balance.

      I believe this is correct but check it out since the penalty for under withdrawal is very high!!

  35. QUESTION:
    If I do a Withdrawal from traditional IRA with no other income for the year, what will the taxes be?

    • ANSWER:

  36. QUESTION:
    What are the rules for a hardship withdrawal from someones’s IRA that exempts someone from paying the 10%…?
    withdrawal ffee?
    How about unemployment as a hardship?

    • ANSWER:
      It depends on your definition of hardship. Most people don’t qualify.

      Disability.
      Medical expenses in excess of 7.5% of AGI.
      Premuims to pay health insurance if unemployed.
      Education expenses, purchase new home.
      Paying an IRS levy.
      Qualified distributions due to Midwest disaster.

  37. QUESTION:
    Can I make withdrawal from traditional IRA after rolling over from a 401k?
    I plan to rollover my 401k from my company after I leave into an IRA. Is there a time limit before I can withdrawal money from the IRA? I was going to pay for my wifes schooling with that money (and avoid the extra 10% penalty). I know I will pay taxes on the withdrawal it but I’m just curious if there is a time limit before I can do that or some other restrictions.

    Thanks
    David M: Sorry but I don’t think you understand completely. I can avoid the “penalty” if the money is used for qualified education expenses. At that point I just pay the taxes and it’s a wash.

    • ANSWER:
      there is not a time limit that you have to follow to take advantage of that exception. What you will want to be careful to do is take only exactly what you need and turn around the same day you deposit the check from your IRA….write a check to the educational institution in exactly the same amount. you want to avoid the appearance that the withdrawal money is being used to fund something other than educational expenses.

  38. QUESTION:
    Is Qualified Charitable (QCD) from IRA included for 2010 in the tax bill now being considered by congress?
    Qualified Charitable Donation from IRA was available for people age 70 1/2 or older in 2009. Under this feature “QCD” withdrawals from IRA’s are excluded from AGI. Will the new bill approve this feature for 2010? I heard a rumor that it would. Has the detail been made available so we can tell for sure?

    • ANSWER:
      It is being handled differently this year, Ira distributions for 2010 are added to your AGI instead of being deducted/excluded. This site that explain this further and breaks down the differences between 2009 and 2010.

      http://financialducksinarow.com/2431/charitable-contributions-from-your-ira-2010-and-beyond-2/

  39. QUESTION:
    I am receiving unemployment benefits and recently I did a withdrawal from my IRA. Do I need to report this?

    • ANSWER:
      Taxable IRA distribution from your IRA account is unearned income that would not have any affect on your UI benefit so you would NOT need to report the amount to the UI office.
      Any earned income that you receive for performing your services working for some one would have to be reported to the UI office.
      Under the age of 59 1/2 the IRA taxable distribution amount will be subject to income tax at your marginal tax rate plus the 10% early withdrawal penalty when you correctly complete your 1040 income tax return for the 2011 tax year next year in 2012 and you really do need to make sure that you are having some income tax withheld from you unemployment benefit amounts and pay enough income tax during the tax year to cover the income tax liability that may be due when you file the tax return next year.
      Go to the www.irs.gov website and use the search box for 1040ES and then go to page 6 also has the 2011 Tax Rate Schedules and page 7 has the estimated tax worksheet available for your use also.

      http://www.irs.gov/pub/irs-pdf/f1040es.pdf

      Copy and paste the below enclosed website address into your browser bar and choose the estimated tax calculator for the 2011 tax year.

      http://www.dinkytown.net/java/Tax1040.html

      Enter your filing status, income, deductions and credits and we will estimate your total taxes for 2010. Based on your projected withholdings for the year, we can also estimate your tax refund or amount you may owe the IRS next April 2011. Please note that this calculator uses the finalized 2010 tax tables and includes tax law changes passed as part of the “Tax Hike Prevention Act of 2010″.
      I would hope that you do find the above enclosed information useful for your situation and good luck to you with this matter. 06/05/2011

  40. QUESTION:
    Who is responsible for early withdrawal penalties from a Simple IRA if the employer changes financial agent?

    • ANSWER:
      If you deposit the funds into another IRA within 60 days, it is a rollover, and there are no early withdrawal penalties. If you take the money, you are responsible for the early withdrawal penalties AND income tax on the distribution.

  41. QUESTION:
    If rollover a 401k to a rollover IRA, when can I withdrawal from it after the rollover?
    like if you have emergency and may need a large sum of money, can it be done?

    • ANSWER:
      Yes, but you’ll pay a penalty if you are under age 59-1/2.

  42. QUESTION:
    What penalty is their if you withdrawal money from a roth ira before 5 years?

    • ANSWER:
      I assume you contributed to the Roth directly and not as a rollover from another investment such as a 401k or traditional IRA.

      Your contributions can be withdrawn at any time without tax or penalty. If your account is less than five years old (counted from January 1 of the first year of contribution), and you do not meet an exception, the part of your distribution that is earnings is subject to income tax plus a 10% early withdrawal penalty.

      When you take a distribution, your contributions are deemed to be distributed first, and then the earnings.

  43. QUESTION:
    Is the 10% penalty for early withdrawal from an IRA…?
    Is it 10% of the amount you withdraw or 10% of interest earned? If I put in ,000 and it is now only worth ,000, will there be no penalty? Do i pay taxes on the ,000 or ,000?

    • ANSWER:
      The money was not taxed going in so it’s taxed coming out. And if you are subject to the 10% penalty it’s collected on the entire distribution. You’ll pay tax on the ,000 plus an 0 penalty.

  44. QUESTION:
    how do i figure the minimum withdrawal from my IRA acct? I am 76 yrs old.?

    • ANSWER:
      There are tables in IRS Publication 590, Appendix C, which starts on page 84 of the publication – you can download it at irs.gov. There are different tables depending on your marital status and age of spouse if applicable. The tables give you the percentage of your IRA value you have to take out in any given year.

  45. QUESTION:
    What is the penalty and tax on early withdrawal from an IRA account? Can my tax liability financed?
    I am underemployed at the present time. I do not take in enough income to pay my bills. My savings drops down to extremely low levels. My only reserve at this point is to tap into my IRA account to bail me out. Last year I took out about ,000.
    The taxes and penalties involved for that are confusing. No, I am not over age 59 and a half. What is the tax involved? Ten percent? Twenty percent? And then is there a penalty involved also? What percentage is that?
    I had to do this last year also. My CPA accountant went over a list of exceptions. Medical bills are one and there are others. And there is something about the medical bills being under or over a certain percent of my income. If this is long and complicated, can you send me a link to the list of exceptions and what the math is on that? Percentages, over, under. It makes my head spin.
    Finally, let’s assume that I do have to pay the taxes and penalties. In the worst case scnario, it could be more than I have in my savings right now and the idea of taking out money from my IRA to pay the taxes and penalties on last years withdrawals is heart wrenching. Is there any way that I can pay my taxes by financing the tax liability? Can I pay a portion of the tax each month or every three months throughout the year until it’s paid off?

    • ANSWER:
      Any distributions are fully taxable as ordinary income. They will be added to your other income, so the tax rate will depend upon your total income for the year including the distribution. Since you are under age 59 1/2, there’s an additional 10% penalty tax on top of the income tax. You can avoid the penalty if the proceeds were used to pay off medical bills that exceeded 7.5% of your AGI.

      If you cannot pay the taxes in full by April 15th, you can set up a payment plan with the IRS. Keep in mind that part of the agreement that you’ll have with the IRS is that you stay current on all other tax obligations going forward. If you don’t, your payment agreement will be in default and at the very least you will be facing additional penalties and fees to bring it back into good standing.

  46. QUESTION:
    First-time homebuyer/ IRA withdrawal from spouse?
    We’re in a pretty complicated situation, so please advise how much of a boo-boo we’re in and any way it can be fixed with less taxes having to be paid back.
    The first part of this is we took out about ,000 and thereby closing the Easy IRA account to go towards purchasing a home. We didn’t get any seller’s assist, so the downpayment and closing cost was almost ,000. The IRA account was under my husbands name, the house/loan was going to be under my name. As you can already see, the first problem is that the withdrawal is over ,000 max allowed. (just read about it). So with that money we had used 00 earnest money and 0 appraisal. The next problem, without getting too detailed, is we didnt get the house. So we’re out the 50, and then we still have balance of the IRA. Now we’re in the process of getting another house, but we have sellers assist and are looking at about 00 to bring to the table at closing. All this will be taking place before the 120 days is up. So is there anything that can be done with the unused portion? What about the money that was used for the first house purchase? About how much will we be penalized?

    • ANSWER:
      Put the amount that you are not going to need back in an IRA withing 60days and you don’t have a problem. To be safe you could put ,000 back and put all of the rest down on the house.
      You still pay ordinary tax rates on the amount that you keep out but will avoid the 10% penalty on all of it.

  47. QUESTION:
    Withdrawal from my IRA?
    I would like to buy a home. I need to withdraw the down payment from an IRA. Will I get slammed with taxes and penalties?

    • ANSWER:
      You will be taxed based on the gross distribution amount added on top of your other income. The trustee would likely withhold 20% of it towards taxes, but that may not cover it (plus any state income tax).

      There is no penalty for up to ,000 IRA distribution towards your first home, but it has to be used for that within a specified period of time. So do not withdraw it until sure that the purchase will happen. See IRS Publication 590.

  48. QUESTION:
    will folks over 70 1/2 be required to take a withdrawal from their IRA for the year 2009?

    • ANSWER:
      No, the required minimum distributions have been waived for tax year 2009.

  49. QUESTION:
    IRS rules about withdrawals from a regular IRA?
    How much do you have to withdrawal from your IRA after you reach 70 and 1/2? Or how little can you withdrawal from your IRA after 70 and 1/2?

    • ANSWER:
      You have several options. The right one depends on whether or not the IRA is needed for retirement income. If the IRA is going to sit “for a rainy day”, then there is a mathmatical formula that calculates your Required Minimum Distribution (RMD). This is the minimum amount that Uncle Sam says has to be liquidated yearly. Its his little way of making sure that you remember that he gave you tax-deferral for years, and now he is wanting to collect his taxes. As the balance on the IRA grows, so does the amount that must be liquidated. Talk to your financial advisor or insurance professional about purchasing a Lifetime Income Annuity that will not only satisfy the RMD, but will guarantee a stream of income as long as the IRA owner lives. Otherwise, its time to annuitize the IRA to create income, either with a period certain or lifetime income.

  50. QUESTION:
    i requested an inservice withdrawal from my Simple IRA and was told that it is not allowed, is this correct?

    • ANSWER:
      Read your plan document. A SIMPLE should be covered by the same withdrawal rules as an IRA: withdrawals constitute taxable income (ordinary income); 10% penalty if withdrawn before 59-1/2 (25% if in the the first 2 yrs of the plan); money must be in SIMPLE for 2 years before you can roll to an IRA.

      There are some special withdrawals allowed for SIMPLEs:
      - for medical expenses
      -to buy a first house
      - if you are completely disabled
      - to purchase health insurance
      - to pay for college expenses

      So the withdrawals should be allowed, providing the money has been in the plan for at least 2 yrs.