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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