Create an annuity
The IRS allows you to turn your IRA into an income stream penalty-free by arranging to take substantially equal periodic payments, or SEPP, over your life expectancy.
You must continue such payments until at least age 59½, or for five years, whichever comes later.
Such a strategy might make sense, says Luscombe, if your retirement savings are sufficient and you're struggling to pay for private-school tuition for your school-aged children.
It may also be appropriate if you're ready to retire early, or you've separated from your employer and need to fill a temporary income gap.
Because you cannot stop SEPP payments once they begin without incurring a penalty, those seeking a short-term solution might instead consider borrowing from their 401k and paying themselves back with interest, says Luscombe.
A source of income when disabled
Lastly, you can tap any amount of your IRA without paying the 10% penalty if you become disabled and are no longer able to work.
You must be able to furnish proof of your disability as determined by a physician, and your disability must be expected to result in your death or be determined to last for an indefinite period.
Chances are good that if you qualify for Social Security Disability Insurance, you'll also meet the exemption requirement for an IRA.
While IRAs offer great flexibility, Luscombe says early withdrawals should be taken only as a last resort.
"The big plus of the IRA is the long-term deferral of taxable earnings. So even if you are avoiding the penalty, you are not only paying any tax you might owe today, but you're forgoing the gains you would have earned between now and retirement. So it's a double hit," he says.
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Retiring? Phhhhsht. In the real world..., you know the pay check to paycheck world?: People are going to work until they die. If they are unlucky enough to get sick right before that happens?: Then the Medical industry will drain what little we have saved. So all this retirement talk is to keep a run on the banks from happening. Because if people really knew how much they needed and how much they fall short? IRA investments would collapse and if you thought the 2008 financial crisis was bad????
If your medical expenses exceed 7.5% of your AGI, they are deductible and not taxable, whatever source you use to pay for it.
If you convert your conventional IRA to a Roth just so your heirs won't have to pay the income tax, you are probably paying more income tax than you need to. Leave it as a conventional and let your heirs - who are more likely to be in lower tax brackets - pay the tax.
Sheesh. Anyone can call themselves a financial planning expert.
This is a dangerous game to be playing, just so some professional can brag about how much he
knows? Distributions from IRA's are potentially harmful. If the money is kept in the IRA, it has
legal protections. And think of 2013. In 2013 the IRA penalty goes from 10% to 20% thanks
to Mr Obama.
Don't underestimate the tax implications. If someone takes 25,000 dollars out of their IRA, and
they make say 60,000 in salary and are married, they just went from a 15% tax bracket to a
25% tax bracket. Plus they must pay the tax on the 25,000. Potentially a very dangerous
situation. You do not want to be in debt to the IRS.
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