How to avoid penalties on early IRA Distribution.
Are you considering early retirement or a retire early income strategy? Maybe you are asking the question, can I retire or can I retire at 55?
If you are thinking about retirement anytime before age 59 1/2 you have to understand IRA distribution options and IRA penalties. There are specific exemptions for taking early IRA distributions and avoiding a penalty for taking those IRA distributions.
Any retirement planning strategy that encompasses a retire early portion MUST understand these IRA exemptions. If you do not follow these IRA exemption distributions and you withdraw retirement income for an early retirement under the age of 59.5, you will pay a penalty for taking the IRA distribution early.
Below are the exemptions you are allowed in an early retirement to avoid the 10% penalty for an early retirement IRA distribution.
1. Medical expenses: if you have medical expenses in excess of 7.5% of your adjusted gross income, early IRA withdrawals are exempt from the 10% IRA penalty in the same year.
2. Qualifying higher education expense: use your IRA for qualifying higher education expense for yourself, a spouse, child, stepchild, or adopted child.
3. Health insurance premiums during unemployment: must be unemployed for 12 consecutive weeks and only up to the amount paid. Can be used for you, a spouse, and your kids.
4. IRA withdrawals for births and adoptions: $5000 limit.
5. First time home purchase: you can take $10,000 out of your IRA and use it within 120 days for a first time home purchase. This can be used for you, your spouse, your kids, or grandparents.
6. Military reservist called to active duty: at least 180 days of active duty or more.
7. Disability: if you cannot work at your job or some more jobs, you can use your IRA for disability distributions. The disability must be leading to death or have a long duration.
8. At Death: at your death your beneficiary can remove your IRA funds without penalty.
9. Substantially equal periodic payments: a 72T is a way to remove funds from your IRA without incurring a penalty. You want to make sure you work with the CPA or a tax accountant. In order for this type of IRA distribution to not have penalties, you must take the IRA distribution for five years or age 59 1/2 whichever is longer.
Retirement income strategies and retirement income planning are two big pieces to anyones retirement planning calculator. Whether you are wanting to know strategies for “retirement planning at 30”, “retirement planning at 40”, “retirement planning at 50”, or even “retirement planning at 60” understanding how much retirement income that you want versus how much you need gives you a roadmap to follow to and through retirement.
Here at Pearl Wealth Group, we run a trademarked retirement investment and retirement income plan for individuals and families who are wanting to retire called “Your Financial EKG™.” What we are trying to visualize is how long a persons retirement savings are going to last throughout retirement. If you are looking for early retirement planning tips or trying to saving for retirement in your 50’s, You Financial EKG™ is a great tool to help you understand where you are retirement planning. Retirement planning and retirement income strategies shouldn’t be complicated. They should just be done right.
What to know about required minimum distributions from your IRA: https://pearlwealthgroup.com/required-minimum-distributions/
How to retire early: https://pearlwealthgroup.com/how-to-retire-early/
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What to know about required minimum distributions from your IRA: