Right Retirement Plan

During times of monetary hardship, it can be highly enticing for you to use the finances you might have collected in your traditional IRA savings.

In most cases, this is a bad idea, as you'll be hit with a 10% penalty on any unqualified early IRA withdrawals you make, in addition to the ordinary income taxes you'll owe on the IRA withdrawal.

For the benefit of common man, however, the government has made some exclusions to this base rule, which enables people certain tax-free IRA Early withdrawals.

The following are some of the exceptions that the government has set:

1. Handicapped person.

If a person is mentally or physically incapacitated, and is not able to earn a sufficient living, such a person is excused from paying fines on early IRA withdrawal. People who happen to belong to this category are supposed to speak with their IRA custodian so as to avail the government-given exception by producing the proof in front of the official. Most of the times, and it changes from one custodian to another one, disabled people are asked to bring a note from their respective doctors stating that the disability is unending.

2. Costs to be incurred for higher education.

If you've decided to go back to school, or if you'd like to assist with the educational expenses of your spouse, children or grandchildren, you may be able to receive tax-free early IRA withdrawals to help cover higher education expenses. The provision of this exception, however, covers only certain aspects, such as fees, tuition, books, and any IRA withdrawals are necessarily to be directed towards a renowned educational institute. Whether or not your higher education expenses make you suitable to avail this opportunity will be decided by your IRA custodian.

3. First-time home purchases.

Up to $10,000, the U.S. government annuls the penalty tax for early IRA withdrawal, only if the purpose of the withdrawal is to construct your very first house As the credit extends to your first home only, the $10,000 cut-off is a lifetime maximum, although this early IRA withdrawal may also be used for a child or grandchild's first home purchase as well.

4. To compensate medical expenses.

If you are unemployed or are not currently covered by health insurance, you may be able to take penalty-free early IRA withdrawals in order to cover un-reimbursed medical expenses. However, be aware that many restrictions apply to these IRA withdrawals that may limit the amount of expenses you can claim or when you claim them. Check with a tax planner to if you qualify for this type of tax-free premature IRA withdrawal and in order to know how much money you can take from your account.

The government has set these exceptions to share the economic burdens of their citizens, but you need to appreciate that there are some loopholes that have to be taken into consideration. For instance, in the case of un-compensated medical expenses, you are eligible to withdraw funds equal to the difference between 7.5% of your Adjusted Gross Income (AGI) and the medical expenses you incur. Our simple advice to you to is that prior to going in for a premature IRA withdrawal, always refer to a tax expert in order to save yourself from undue tax troubles and complications.