Escape early withdrawal fees on your traditional IRA
The recession officially ended in 2009, but millions of Americans are still reeling from the financial effects of the economic downturn. When individuals are strapped for cash and facing significant life changes, many unwillingly turn to their retirement accounts to help them get through difficult times. While making early withdrawals can be extremely costly to taxpayers and should be considered a last resort, there are some circumstances in which making an early withdrawal from an individual retirement account will not yield heavy tax penalties.
For example, adults who have been diagnosed with a chronic illness or is facing another medical crisis may use IRA funds to help cover costs. However, in order to access funds without incurring an early withdrawal penalty, the distribution must be used for expenses that exceed 7.5 percent of the patient's adjusted gross income. The IRA accountholder, their spouse and qualified dependents fall under this rule.
Individuals may also lean on their IRA to cover the cost of medical insurance premiums after a job loss. Similar to using funds to cover medical expenses, certain conditions must be met in order to qualify. Those who are jobless and receiving unemployment compensation must wait at least 12 weeks from when they enrolled in benefits.
Although the economy is still in a state of recovery, many home buyers are taking advantage of unprecedented low mortgage rates and falling home prices and searching for a house. Home seekers may use up to $10,000 from their IRA - or $20,000 for couples, if each qualifies and takes a $10,000 distribution from their own IRA - to cover the costs of buying, building or rebuilding a "first home." To meet the "first home" stipulations, individuals must not have any financial interest in another primary residence for two years prior to purchasing a new home. Spouses must meet this qualification as well.
Some adults may also choose to go back to school to earn a degree, and IRA funds may be used to cover qualified education expenses. The latter refers to tuition, books, course materials and fees. The funds may be used to cover expenses for the IRA account holder, spouses, children and grandchildren.
An IRA can be a viable option to cover expenses associated with big life changes. However, individuals should consult a tax preparer to ensure that they are using their funds correctly and meet all the requirements to avoid a hefty early withdrawal penalty.
Liberty Tax Service provides computerized income tax preparation and electronic filing. Each tax office offers customers audit assistance, a money back guarantee, and free tax return checking.
About Liberty Tax Service
Liberty Tax Service is the fastest -growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 8,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service.
Liberty Tax Service is the only tax franchise on the Forbes “Top 20 Franchises to Start,” and ranks #1 of the tax franchises on the Entrepreneur “Franchise 500.” Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.