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Answer:
Dear
BuyandHolder,
Good
that you asked! The answer is "yes." But let's backtrack
a bit.
In
general, if you withdraw money from the traditional
IRA (as opposed to the Roth) before you reach 59?,
you must include the amount as income when you file
your tax return. In addition, you will be hit with
10% early withdrawal tax penalty on the taxable amount
you take out. (Nondeductible contributions are not
subject to the 10% penalty.)
However,
the 10% penalty does not apply to early IRA withdrawals
when used for specific, IRS-approved purposes.
Those
5 purposes are:
(1)
To pay for health insurance premiums --
provided you've been receiving unemployment for 12
consecutive weeks. If you're self-employed and have
been out of work for 12 weeks, the exception also
applies.
(2)
To cover expenses because of a permanent (and total)
disability.
(3)
To pay for uninsured medical expenses in excess
of 7.5% of your income.
(4)
To pay for qualified higher education expenses
for yourself, your spouse, child or grandchild. Among
the expenses that qualify are tuition, books and supplies.
If the student is enrolled at least half-time, then
room and board also qualify.
The
student also must attend an "IRS-approved public or
private institution." This means the college, university
or vocational school meets federal student aid program
requirements.
(5)
To purchase your first home or that of your
spouse, child or grandchild. It can be used not just
to buy a house but also to build or rebuild one. And,
financing and closing costs qualify.
$Tip:
There's a nice break here. The ruling doesn't mean
that it literally must be your first home...it means
that you have not owned a primary residence within
two years of the IRA withdrawal. Let's say, for example,
that you sold your house and have been renting an
apartment for three years. In the third year, you
decide to purchase a house -- you then qualify for
the penalty-free withdrawal.
There
is a $10,000 limit. Married couples can each take
$10,000 out of their respective IRAs, but $20,000
cannot be taken from one account.
A
word of caution: Time your withdrawal carefully.
You must use all money withdrawn within 120 days of
taking it out of your account. Finally, if you make
an early withdrawal, you must file IRS Form #5329.
For
More Information: Consult IRS Publication #590,
Individual Retirement Arrangements available
at: www.irs.gov.
Good
luck!
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