Avoid Penalty for IRA Withdraw - Withdrawing from your IRA accounts before age 59 may cost you a 10% penalty (in addition to any normal tax requirement). However, the IRS does offer some exceptions...

  1. School costs - No penalty required by IRS as long as the IRA money goes toward qualified schooling costs for...
    1. yourself
    2. your spouse
    3. your children
    4. grandkids
  2. First home - Use up to $10,000 from IRA toward purchase of first home. Married buyers (both you and spouse first-time buyers) can each pull $10,000 from their respective IRA, yielding $20,000 in residential cash.
    1. IRS definition of first-time homebuyer - According to IRS, you are a "first-time homebuyer" as long as you (or your spouse) didn't own a principal residence at any time during the previous two years. Plus, the first-time homebuyer using your IRA funds for a down payment can be you, your spouse, one of your children, a grandchild or a parent.
    2. You must use IRA funds within 120 days of withdrawal to pay qualified acquisition costs: costs of buying, building or rebuilding a home, or any usual settlement, financing or closing costs.
  3. Different treatment for Roth IRAs These homebuying IRA options apply to traditional retirement accounts. As long as you have had the Roth IRA for five years or more, the $10,000 withdrawn for first home is a qualified distribution. So you can take out your Roth IRA retirement money without penalty--plus, because Roth earnings are tax-free, you'll have no IRS bill. If, however, your Roth IRA less than five years old, the withdrawal is an early distribution. As with a traditional IRA early withdrawal, a Roth holder can use the withdrawl for a first-home (avoiding the 10 percent penalty), but you might owe tax on earnings that are withdrawn.
  4. Other uses that can avoid penalty:
    1. Payment of excessive unreimbursed medical expenses.
    2. Payment of medical insurance premiums while unemployed.
    3. Total and permanent disability.
    4. Distribution of account assets to a beneficiary after you die.

Source - When It's OK to Tap Your IRA: Yahoo! Finance

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