More Ways to Get Your Retirement Money Early

Last week we discussed why Roth IRA’s are perfect for Millennials. One of our reasons was the flexibility of Roth IRA’s when it comes to needing cash now for emergencies. Of course, a Roth IRA isn’t the only way to tap into your retirement funds early with no penalty. Today, we are going to recap 10 other ways you can use your retirement funds now:

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  1. Borrow From Your 401(k): The law allows you to borrow up to $50,000, or half your vested balance (whichever is less) from your 401(k) without owing taxes or incurring penalties. *Note: Employers don’t have to allow loans, but most big firms do. 
  2. Take Regular IRA Payouts: You can take “substantially equal periodic payments” from an IRA at any age for any purpose, without penalty. Once you begin such payments, you must continue withdrawals for at least five years or until you are 59 1/2, whichever is longer. The simplest method to calculate the payments: divide your IRA balance by your life expectancy. If that produces more cash than you need, split your IRA up and take payments from just one part.
  3. Leave The Job After 55: If you leave a job in a calendar year that you turn 55 or older, you can withdraw funds from the 401(k) associated with that job without penalty. This applies even if you’ve gotten a new job. *Warning: If you roll the money into an IRA, then the IRA rules, which impose penalties until you’re 59 1/2, will apply. 
  4. Tap An Inherited IRA: You can take money from an “inherited IRA” without penalty at any age. *Warning: If you inherit an IRA from a spouse instead of a parent or other relative, you’re eligible to roll it into your own name. If you do so, you’ll lose the ability to take money out without penalty when you need it. So wait until after you’re 59 1/2 to roll an IRA inherited from a spouse into your own name.
  5. Pay For College From An IRA: You can take an unlimited amount, penalty free, from a pre-tax IRA (but not a 401(k)!) to pay for college or graduate school tuition, books, and fees for yourself, your child, or your grandchild. If the student is in school more than half time, IRA money can also be used for room and board. *Warning: Any withdrawals you take count as taxable income and could limit your eligibility for financial aid the next year.
  6. Tap Your IRA For Your First House: You can take up to $10,000 from a pre-tax IRA penalty free to buy your first house. This provision doesn’t apply to a 401(k); even if your company allows you to take a distribution for a down payment, you’ll still be subject to the 10% penalty as well as ordinary income taxes on the withdrawal. So if you’re a young house hunter and you leave a job, roll your 401(k) into an IRA.
  7. Borrow An IRA Rollover: This is a dangerous maneuver, but if you’re sure you only need cash for a few weeks, you can “borrow” from your IRA through a rollover. Once you take the money out of on IRA, you must get it back into another IRA within 60 days. If you don’t, the IRS will treat it as an early distribution, subject to tax and (if you’re younger than 59 1/2) a 10% penalty too. Don’t expect the IRS to show any mercy if you mess this one up.
  8. Pay Big Medical Bills: You can take a distribution from an IRA or 401(k) penalty-free to pay for certain medical expenses. *Warning: Only expenses that exceed 10% of your adjusted gross income are eligible, and you must pay those expenses in the same year you take the distribution. 
  9. Pay For Medical Insurance: If you’re unemployed, you can take money penalty-free from an IRA (but not a 401(k)!) to pay for health insurance. To qualify, you must be on unemployment insurance for at least 12 weeks, and you can’t take the money out more than 60 days after getting a new job.
  10. Tell The IRS To “Levy Me”: If you use money from your IRA or 401(k) to settle a back tax bill, you’ll owe both income taxes and a 10% penalty on the withdrawal, assuming you’re not yet 59 1/2 or permanently disabled. If, however, the IRS gets its money by levying your retirement account, you’ll escape the 10% penalty.

 


To learn more about ways to get your retirement money early, call our office at (314) 993-4285 or e-mail us at office@hkaglobal.com

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