Make Money Online with Honeygain! - Download this free software for your Windows computer, Android or iOS phone and get paid to share your internet connection! Download, turn it on and earn!

10 Ways to Avoid the 10% Early Retirement Withdrawal Penalty

Posted by financialadviser on October 24th, 2018

If you have any type of tax advantaged retirement account such as an IRA, Roth IRA, 401(k) or annuity, you are not able to take withdrawals prior to age 59 ½ without incurring a 10% early withdrawal penalty. What most people don’t know is that there are ten ways that this penalty can be avoided. Check with your tax professional or financial advisor to make sure that you execute these strategies appropriately so that you don’t incur the penalty plus interest that can be charged to you when this is done incorrectly. Here is the list of ten ways you can avoid the early withdrawal penalty.

  1. You establish a series of substantially equal periodic payments (based on Section 72(t) of the Internal Revenue Code) that are made at least annually and continue for the course of your life expectancy (or the joint life expectancies of you and your designated beneficiary). If taking money from a company plan, payments cannot begin until you leave the employer. Once you begin this process, you cannot make any changes until you reach age 59½, or until five years has passed, whichever is longer.
  2. You become disabled prior to 59½.   
  3. You separate from service after age 55, meaning you quit, retire or are discharged from your employer.   
  4. You get divorced, and the money is distributed to you in accordance with a Qualified Domestic Relations Order, issued by the judge.   
  5. You use the money to pay for qualified medical expenses. Among other requirements, such expenses must exceed 7½% of your Adjusted Gross Income.
  6. You contributed too much money to your IRA or retirement plan, and you remove the excess from your IRA (or your employer returns the excess plan contribution to you). The return of excess contributions is not subject to the 10% early withdrawal penalty. However, if the excess contributions are not removed in a timely manner, additional penalties and interest could apply, dwarfing the 10% penalty.   
  7. An employer’s matching contribution to your 401(k) was excessive.   
  8. You made voluntary deferrals to your 401(k) plan in excess of IRS limits.   
  9. You receive dividends from stock that is part of an Employee Stock Option Plan.
  10. You die.

Of course no one plans for the tenth way to avoid the ten percent penalty but in the unfortunate event that someone does die before needing their retirement funds, the penalty will be avoided.

In addition to these strategies, you can also take loans out of your account without penalty to pay for many things including down payments on a house or pay down debt. As you repay back the loan, the principal and interest is paid back to your account. This is another creative way to not only make returns on your account but avoid penalties from early use of the money.

Disclaimer: Please seek professional advice regarding tax liability and investing options based on your personal situation.

Also See: Withdrawal Penalty, 401 K, Early Withdrawal, Ten Ways, Penalty, Ira, Retirement

Learn to Play Piano with Chords | Playing Piano with Chords
Learn the magic ingredient to piano playing in all styles: Chords! Discover easy ways to play and create the music you like.
CryptoTab Browser - Easy way for Bitcoin Mining | CryptoTab Browser
CryptoTab Browser is the world's first web browser with built-in mining features. Familiar Chrome user interface is perfectly combined with extremely fast mining speed. Mine and browse at the same time!

Quality Office Furniture USA Shipped Direct - Madison Liquidators
Nationwide vendor of quality office furnishings including Desks, Office Chairs, Conference Tables, Cubicles and more!

Lolli: Earn Free Bitcoin When You Shop Online!
Lolli is a rewards application that gives you bitcoin for shopping at your favorite online stores.

Advertise Here