- How Does A Retirement Savings Account Compare To Pension Plan?
- How To Determine Which IRA Is Best For You
- How To Leave Retirement IRA Fund To A Friend
- How To Get An Additional Child Tax Credit
- How To Know When To Cash In A Savings Bond
- Quick Intro: IRA Funds
- How To Figure Out Child Tax Credit Eligibility
How To Avoid A Roth Ira Early Withdrawal Penalty
Every Roth IRA investor should know how to avoid a Roth IRA early withdrawal penalty. Roth IRAs are a super way to save for retirement. They are a great investment vehicle for those starting out in their career or those that need to play catch-up with their retirement nest egg. However, there are penalties for Roth IRA early withdrawal that every Roth IRA account holder should know. According to the IRS, an early withdrawal from a Roth IRA account occurs when a distribution is received before the age of 59 and a half years. Once classified as a Roth IRA early withdrawal, a ten percent penalty is accessed on the distribution. Fortunately, there are ways to avoid a Roth IRA early withdrawal penalty. However, you need to have your money in the Roth IRA account for at least five years to qualify for these exemptions.
- Purchase a first home. The IRS allows a first-time home buyer to use up to $10,000 to finance a first time home purchase.
- Fund college tuition. Roth IRA funds can be used for college tuition for yourself, your spouse, your children and even your grandchildren.
- Pay medical expenses. If your medical expenses accounted for more than 7.5% of your adjusted gross income, then you can use Roth IRA cash to pay these medical expenses.
- Become disabled. Obviously, you do not want to become disabled, but if by chance you do, the IRS will allow you to withdraw your Roth IRA money if you become permanently disabled without incurring an early withdrawal penalty.
- Pay medical insurance premiums. If you become unemployed for longer than twelve weeks, you can access your Roth IRA money without an early withdrawal penalty.
- Pay an IRS levy. Another exemption allowed to avoid paying a penalty includes using your Roth IRA money to pay taxes owed to the IRS.
- Pass away. Of course, this is not a good thing, but if you die, your estate will not have to pay the ten percent Roth IRA early withdrawal penalty to have access to your Roth IRA account.
Before making an early Roth IRA withdrawal, be sure to check with a tax professional to ensure you won't be subject to an early withdrawal penalty.
Posted on: Sep. 05, 2010