3 Ways to Get Money From a Retirement Account Penalty-Free

Sometimes the key to a successful retirement is to calculate the moment in life when you can retire on your own terms, instead of having retirement forced upon you.

Hopefully, the droves of Americans now retiring are retiring on their own terms.

More than half of Americans over the age of 55 have officially retired. Meanwhile, a significant number of retired Americans feel psychologically insecure about being retired and able to financially care for themselves.

Retirees with significant savings in a traditional IRA or a Roth IRA may be able to weather financial insecurity better than others.

Taxes are paid via contributions in a Roth IRA, so qualified withdrawals in retirement are tax-free. With a traditional IRA, taxes are paid on each qualified withdrawal.

However, unless your Roth IRA has been open for at least 5 years, there is a 10% penalty per withdrawal and taxes. Withdraw from a traditional IRA before you are 59 and ½ years old, and you will also deal with a 10% penalty.

Additionally, retirees will miss out on compounding interest that will be needed later.

However, there are several qualifying exceptions where you can withdraw from a retirement account early without a penalty. Here are three ways to get money from a retirement account penalty-free.

Adoption or childbirth expenses

If a retiree adopts a child or has one naturally or via surrogacy, each parent can withdraw $5,000 early within a one-year period.

The one-year period starts on the birth date of the child or the legal date when the adoption paperwork is finalized.

First home purchase

Qualifying retires can withdraw $10,000 from a retirement account to buy, build, or rebuild a home. There is a $10,000 is the maximum limit for such a withdrawal.

The $10,000 must be spent for such purposes within four months of withdrawal.

A retiree cannot have owned a home for at least 24 months to qualify. The funds can also be used to help the grandchild, child, or parent of the withdrawing party.

College tuition and expenses

The amount of money that retirees withdraw can’t exceed the expenses needed to pay for their higher education costs for an academic year.

Qualified withdrawals can be used to pay for the withdrawer’s tuition, or that of their grandchildren, great-grandchildren, children, or spouse.

 

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