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Early Retirement Account Withdrawals

The consequences and how to avoid them.

September 8, 2011
Barbara J. Querry · CPA

IRA Exceptions

Death of the IRA owner. Upon your death, your designated beneficiaries may begin taking distributions from your account. Disability. Under certain conditions, you may begin to withdraw funds if there is total and permanent disability. Unreimbursed medical expenses. You can withdraw the amount you paid for unreimbursed medical expenses in excess of 7.5 percent of your adjusted gross income for the year of the distribution. Medical insurance. If you lost your job or are receiving unemployment benefits, you may withdraw money to pay for health insurance. Part of a substantially equal periodic payment (SEPP) plan. If you receive a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary, you may take payments over a period of five years or until you reach age 591/2, whichever is longer, under three methods. Qualified higher-education expenses for you and/or your dependents. First home purchase, up to $10,000 (lifetime limit).

Employer-Sponsored Plan Exceptions

The death of the plan owner. Your designated beneficiaries may begin taking distributions from your account. Disability. You may begin to withdraw funds if there is total and permanent disability. Part of a SEPP program. If you receive a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary, you may take payments over five years or until you reach age 591/2, whichever is longer. Separation of service from your employer. Payments must be made annually over your life expectancy or the joint life expectancies of you and your beneficiary. Attainment of age 55. The payment is made to you upon separation of service from your employer and the separation occurred during or after the calendar year in which you reached the age of 55. Medical care. You can withdraw the amount allowable as a medical expense deduction.

Carefully examine the rules on exemptions for early withdrawals, or you may wind up with an unnecessary tax bill.

 
 
 

 

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