Can You Escape the Early Withdrawal Penalty

Having a traditional IRA is a great way to plan for your future. Unfortunately, however, if you don’t plan fully and appropriately, you may end up needing to take money out of your IRA sooner than you thought. When this happens, you may find yourself being forced to pay what is aptly known as an early withdrawal penalty tax. The good news, however, is that there are some exceptions to the rules…at least sometimes. Believe it or not, in certain situations, you may be able to get out of paying a penalty tax.          

Situation #1: You Used Your Withdrawal for Medical Expenses

To start off with, one situation in which you may qualify for a tax exemption on withdrawn IRA funds is if you used your IRA withdrawal funds to pay for medical expenses. Of course, as is always the case with the IRS, there are some stipulations involved.

In order to qualify for a tax exemption on withdrawals used for medical expenses, they must total 10% of your adjusted gross income. As long as your expenses meet this qualifier, you are in the clear!

Situation #2: You’re Disabled

Being disabled is not easy, but it may end up qualifying you for an exemption on early IRA withdrawals.

The “catch”- and isn’t there always one with the IRS?- is that you need to be able to prove that you are disabled and that, as a result of your disability, you cannot engage in any gainful activity.

Getting proof of your disability may require an additional trip to the doctor,but it’s worth it if it saves you money in the long run!

Situation #3: You’re Buying Your First Home

Guess what? If you’re trying to buy your very first home, your IRA deduction may be tax exempt. You can withdraw up to $10,000 to buy, rebuild, or build your very first home for yourself or certain qualified family members…all without paying a penalty.

As you can see, there are definitely some circumstances in which you can avoid an IRS penalty; these are just a few of those situations. The best way to determine if you could possibly qualify for a tax exemption on early IRA withdrawals is to speak with a financial professional.