avoid penalty

Hi Derry,

If the payment you make for unreimbursed medical expenses for that year in which withdrawal is made less 7.5 percent of your adjusted gross income is what your withdrawal is less than then you will not have to pay the penalty for the withdrawal.

Let me also add that the unreimbursed medical expenses which can be included in figuring a deduction on Schedule A, Form 1040 for medical expenses can only be taken into account.

Hi Derry,

There are few other conditions under which the 10 percent penalty will not have to be paid.

If the amount is not more than the medical insurance you had paid for yourself, spouse and your dependents. The medical insurance amount will be taken into consideration if all the following conditions apply:

1. You have lost your job.


2. Because you lost your job you have received unemployment compensation for twelve consecutive weeks paid by any federal or state law.


3. The withdrawal from the IRA was received by you in the year you had received unemployment compensation or in the following year.


4. The last conditions being the amount of IRA withdrawal was received by you within 60 days of getting reemployed.

Also if you are disabled then the penalty will not be applicable. To be considered as disabled you will have to provide proof of not being in a state to perform any substantial gainful activity due to your mental or physical condition. In addition a physician will have to determine that your condition is going to remain the same for long and indefinite duration.

Thanks
James

Another condition under which the penalty will not apply arises in case you die before the age of 59 and half, then the assets in your traditional IRA are allowed to be distributed to your beneficiaries or to your estate without them having to pay any penalty by way of 10 percent additional tax.

Hi Derry,

Apart from the conditions others have mentioned the following exceptions can be used if applicable in your situation to avoid paying 10% additional tax as penalty for the withdrawal.

• The distribution is received by way of annuity by you. What this means is that you can receive distributions which are part of a series of equal payments over your life or your life expectancy. These payments should continue until at least five years after the date of the 1st payment or until you are 59 and half old, whichever is later.


• If you pay for higher education expenses during the year then part or all of the distribution will not be subject to the penalty. The part not subject to tax is the amount which is not more than the qualified higher education expenses for the year for education at any eligible educational institution. Also the education should be for you, or your spouse or the children or grandchildren of your spouse or your.


• An amount of IRA withdrawal up to $10,000 received for buying, building or rebuilding a first home is one of the exceptions.


• The distribution is due to an IRS levy of the qualified plan.


• If the distribution is because of an IRS levy of the qualified plan.

Hope this information will help you.

God bless you

Samantha

Hi Derry,

It is possible for you withdraw cash from the IRA without penalty prior to the age of 59 and 1/2 years. But there are certain conditions under which you can take out cash.

• Permanent disability:
  
  Being an IRA holder, if you can show that you have become disabled permanently, then you can withdraw cash without any penalty.
  
  
• Payment of excess medical bills:
  
  If you are seriously ill or injured and require medical care for a long term period, then the early withdrawal fee may be waived. But for that, your expenses should exceed 7.5% of the adjusted gross income (part of income on which taxes are calculated).
  
  
• Use the withdrawal for home purchase:
  
  When you are willing to buy a home, you can withdraw $10,000 without paying penalty to purchase a home. But this is possible only if neither you nor your spouse has owned a home for the past 2 years.
  
  
• Payment of medical insurance premiums:
  
  If you do not have a job and seek employment, you can take out money from your IRA in order to pay medical insurance. But for this, you should have been unemployed for more than 3 months.
  
  
• Borrow cash from the IRA for 60 days:
  
  You can take out a 60 day loan without any taxes or penalty but you should return the funds to the account at the end of the 60 day period. The IRS considers this as a non-taxable rollover. But this kind of withdrawal is possible once in a year for that particular account.
  
  
• Cash withdrawal from Roth IRA:
  
  Using the Roth IRA, you can withdraw money from your account for any purpose. But you cannot replace the amount withdrawn.

Hope you will benefited from this information.

If you have any query on the details provided, please feel free to contact us.

Thanks,

Caron.