IRA Early Retirement Rules

By Shannon C , last updated August 12, 2011

While financial experts will always counsel individuals who are thinking about cashing in their individual retirement accounts, or IRAs, before they reach the legal retirement age of 59 1/2, there are certain circumstances under which taking an IRA under early retirement rules is not only permitted but encouraged. In these tough economic times that continue to affect workers across the country, more and more individuals are considering taking early withdrawals from their IRA, whether for the purposes of taking early retirement and opening their own business, or for other personal reasons such as returning to school, for shoring up personal finances, or for making a major purchase or payoff such as a home mortgage. Learn more from experts about IRA early retirement rules and decide whether now is the right time to withdraw money early from your IRA account.

IRA Early Withdrawal Rules

Under typical circumstances, the Internal Revenue Service, or IRS, requires that an individual wait until they reach the legal retirement age of 59 1/2 before withdrawing money from an IRA account without enduring tax penalties. Again under normal circumstances, the penalty for early withdrawal of funds from an IRA account before the age of 59 1/2 is 10 percent of the total amount you choose to withdraw from your IRA account. However, there are certain circumstances under which the IRS will waive the penalty and allow for withdrawal of funds from an IRA account before age 59 1/2.

Returning to school: One such reason is if the individual who holds the IRA account plans to return to school. Depending on the number of hours you are enrolled for, you can use the withdrawn IRA funds to pay for tuition, books, fees, and even room and board for your schooling.

First-time home buyer: If you are a first-time home buyer, you are also eligible to withdraw up to $10,000 in IRA funds as a single first-time home purchaser. If your spouse is also a first-time home purchaser, they too can withdraw up to $10,000 from an IRA account, giving you up to $20,000 with which to pay down your mortgage principle when taking out a home loan.

Disability or health care needs: Additionally, if you become disabled before age 59 1/2 and need money to support yourself or pay for health care, or your health care costs in a calendar year exceed 7.5 percent of your income, you can also withdraw IRA funds without penalty.

IRA Early Retirement Withdrawal Rules

However, if you do not meet either of these criteria and you wish to withdraw money from your IRA for early retirement before the legal retirement age of 59 1/2, you will be assessed a penalty of 10 percent of the total amount you choose to withdraw from your IRA account. You will also be required to pay ordinary income tax on the entire amount that you withdraw from your IRA account. If you have a Roth IRA rather than a traditional IRA, however, you will not be required to pay taxes again on money you withdraw since you already have paid the taxes in the year in which the funds were contributed.

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