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Different Ways to Use a Traditional IRA
February 12, 2016 | By Matt Alderton; excerpted from Thrivent magazine
You’ve worked hard to put money in your retirement account, building toward that day when you decide to stop working. You’re not there yet, but suddenly you get laid off and lose your employer-sponsored health insurance. Or maybe your child’s heading off to college and those expenses are more than you thought. What can you do?
Four situations to make an early withdrawal without penalties
Those retirement savings you’ve built may be of some help. Here are some situations when you could avoid paying the 10% early withdrawal penalty (you’d still need to pay taxes).
Help pay for a home
You can take out as much as $10,000 for an individual or $20,000 for a couple (if you each have your own IRA) to pay for a home. Anyone who hasn’t owned a home in the last two years qualifies for this exception. But it’s a once-in-a-lifetime distribution, and both you and your spouse must each meet the two-year requirement.
Cover medical expenses
You can tap your IRA for health insurance premiums (there are some restrictions) or for health expenses that aren’t reimbursed. But, you may withdraw only the amount by which your total medical expenses go beyond 10% of your adjusted gross income (7.5% of adjusted gross income if you or your spouse is age 65 or older, until 2017). So if you had unreimbursed medical expenses of $15,000 on a $100,000 adjusted income, you could only withdraw $5,000 that year without getting a penalty – $15,000 in expenses minus 10% of your adjusted gross income ($10,000).
Pay for education
Whether it’s saving for college, graduate school or a Ph.D. program for you, your child, your spouse or your grandchild, it counts. You can take an IRA withdrawal to pay for any of these expenses – but only for higher education. The only limit to how much you can withdraw each year is the total amount of your “qualified” education expenses, which include tuition, books, fees and, if the student attends class at least half-time, room and board.
Get short-term income
If you’ve lost your job or took early retirement, Substantially Equal Periodic Payments from an IRA, also known as SEPPs, can provide short-term extra income. The IRS provides three different formulas you can use to determine the amount of the SEPP, and you must take annual payments based on the formula you choose for five years or until age 59½, whichever comes last.Ready to find out whether one of these early withdrawal options makes sense for you? Talk to your Thrivent Financial representative. Although Thrivent Financial representatives cannot provide legal, accounting or tax advice, they can be a part of your overall planning.
Read the entire article from Thrivent magazine.
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Securities and investment advisory services are offered through Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent Financial, the marketing name for Thrivent Financial for Lutherans.