Distributions from retirement plans before age 59½ typically trigger a 10 percent tax penalty. However, there are exceptions if you meet certain circumstances or spend the money on specific purchases. Erik Brenner, President of Hilltop Wealth Solutions, discusses situations when investors can tap their plans without penalty.
401ks, IRAs, and other tax-advantaged retirement savings can be used to pay Health Insurance Premiums after a job loss. Retirement funds can also be used to pay for medical expenses that aren’t reimbursed by health insurance and exceed 7.5 percent of your adjusted gross income.
Tuition, fees, books, supplies, equipment, and room and board count, as well, toward penalty-free withdrawals if the individual attending college is at least a half-time student. But the education must be for the account owner, their spouse, or their children or grandchildren. Qualifying institutions include colleges, universities, and vocational schools eligible to participate in federal student aid.
Typically, to use money in an IRA to buy a house, you must be a first-time homebuyer. Yet, the IRS defines “a first-time homebuyer” rather loosely. You are considered a first timer if you haven’t owned a home at any point during the last two years. So, even if you owned a principal residence at some point in the past, you may still meet the first time-buyer requirement.
Also, you don’t have to be the one buying a house! You can tap into an IRA penalty-free if the money is to help an eligible child, grandchild, or parent, buy a home.
Even though there are instances where you can take an early withdrawal from your retirement without being penalized, you still may be subject to federal and state taxes. A trusted Fiduciary Advisor can help determine what taxes you might owe — and may find other options to help you access needed funds.
Hilltop Wealth Solutions is a registered investment adviser. This is not intended to be relied upon as investment advice, nor an offer to solicit to buy or sell any securities.
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