Your individual retirement account or IRA is one of the mechanisms to ensure that you will have money to help you with basic living expenses once you retire. Making withdrawals from your IRA account, however, can be tricky especially if you do not know the rules that apply to the IRA fund. Here’s how you can safely – and without penalty – withdraw from your account.
- Age. First of all, the IRA account under your name should be opened at least five years prior to your first withdrawal. This is a mechanism to ensure that only people who have invested money in the IRA account will be able to benefit from the retirement fund. Apart from the five year minimum waiting period, the earliest year you can possibly withdraw from your IRA account is on your 59 ½ year. Withdrawing before you reach this age will cause you to get penalties that can be as high as ten percent, notwithstanding the potential income taxes that will apply.
- Medical expenses. If you need to withdraw some money from your IRA account before you reach the approved age, you will need to have a medical expense that amounts to up to 7.5 percent. This medical expense should have been shouldered by you using your own pocket money. this will give you the opportunity to withdraw money without incurring the ten percent penalty and income taxes, even if you have not yet reached your 59 ½ year. Apart from this, another exemption that can help you withdraw money before the approved time is by using funds for medical insurance after you have lost a job, or if you have been injured and disabled.
- Higher education bills. Another way to escape the penalties, or at least the great bulk of the penalties, from withdrawing money from your IRA account before reaching the approved age is by using money to pay for higher education during the year that you decide to withdraw IRA money. Another way to do this is by paying for a home, which will qualify you for benefits such as a ten thousand dollar penalty free distribution of funds to help you with the home building.
- 70 and a half. Keep in mind that when you reach the age of 70 1/2, you are actually required by law to withdraw the minimum sum of money from your IRA fund, at least every year. By the 31st of December, you should have reached the minimum withdrawal requirements.
- Talk with your advisor. In the end, however, you should still talk to your financial adviser, your banker, or your investment guru in order to get the full details on how and when to withdraw your money from the IRA fund, as well as how to get the best exemptions for when you really need the cash fast.
By knowing the rules surrounding the IRA, you can get benefits even before you reach the age of retirement. Just be sure that you follow all the pertinent rules and that you are actually a candidate for exemption.