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Answer:
Dear
Jonathan,
Your
IRA is not locked up -- you can tap into it, but do
so very carefully, very reluctantly and only as a
last resort.
Here
are the circumstances in which you can take money
out of a traditional IRA without paying the early
withdrawal 10% tax penalty.
From
what you've written, you may possibly qualify for
#2, #4 and #6.
1)
Disability. The owner of the IRA who becomes disabled
may make early withdrawals... but he or she must be
able to prove that they cannot work.
2)
Annuitizing. You can make a series of "substantially
equal" annual withdrawals for 5 years or until you
turn 59 1/2 (whichever is longer). The amount is based
on your life expectancy as predicted by the IRS.
3)
Unreimbursed medical expenses. You can withdraw
money if it is used to pay for expenses that exceed
7 1/2% of your adjusted gross income (AGI).
4)
Medical insurance premiums. In this case, withdrawals
can be made only after you have received unemployment
compensation for more than 12 weeks.
5)
Purchase of a first home. This withdrawal is subject
to a lifetime limit of $10,000.
6)
Higher education. Withdrawals can be made in order
to pay for qualified higher education expenses for
you (as the owner of the IRA) or for any eligible
family members -- your spouse, children, and in some
cases, even grandchildren. The student must be enrolled
at least halftime in a post-secondary program. Expenses
include tuition, room & board, books and supplies.
7)
Back taxes. Withdrawals can be used to pay back
taxes when the IRS places a levy against your IRA.
The
60-day Loan
The
IRS also permits you to borrow from your IRA for 60-days.
This type of loan is both tax-free and penalty free.
However, you must return the money to your account
within the 60 days, otherwise you'll be subject to
both taxes and penalties. This 60-day loan is available
once a year.
401(k)
Loans
If
you have a 401(k) where you work, keep in mind that
most companies allow employees to borrow from their
401(k) without paying income tax or a penalty -- provided
they pay back the full amount within 5 years.
Typically
you can borrow up to 1/2 the vested amount in your
account but no more than $50,000. There's no credit
check which means the money is available almost immediately,
usually with no explanation required. You then pay
it back with interest (interest is usually 1% over
prime) through automatic payroll deductions.
Good
luck!
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