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(Legally) Avoiding the 10% Early Withdrawal Penalty
Q1: Did you know there are 21 ways to avoid the 10% penalty for taking retirement money out before age 59 ½?
A1: Yes, the IRS provides numerous exceptions to the early withdrawal penalty, with several designed for specific life events like buying a home, paying for college, or retiring early.
Q2: What is the "Rule of 55," and how can it help you retire early?
A2: If you leave your job in the year you turn 55 or older, you can access funds from that specific employer's 401(k) plan immediately without the 10% penalty—a powerful tool for early retirement.
Q3: Can you really use IRA funds to buy a house or pay for college without a penalty?
A3: Yes. You can withdraw up to $10,000 penalty-free from an IRA for a "first-time" home purchase (as the IRS generously defines it) and use IRA funds for qualified higher education expenses.
5 Key Takeaways:
- The Rule of 55 is a critical planning tool for early retirees, but it only works with your most recent employer's 401(k)—do NOT roll it into an IRA.
- Substantially Equal Periodic Payments (SEPP) allow penalty-free access at any age but lock you into a mandated, calculated withdrawal schedule for 5+ years with strict IRS rules.
- IRA Exceptions for Major Expenses: You can use IRA funds penalty-free for a first-time home purchase (up to $10k) and for qualified higher education expenses.
- Medical Expense Hardship: You can withdraw penalty-free for unreimbursed medical costs, but only the amount that exceeds 7.5% of your Adjusted Gross Income (AGI).
- Proceed with Extreme Caution: These are complex IRS provisions with permanent tax consequences. Always consult a qualified tax professional before making any early withdrawal.
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Our Home Base
- Continuum Wealth Advisors
Disclosure
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
Continuum Wealth Advisors, LLC (“Continuum”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Continuum and its representatives are properly licensed or exempt from licensure.
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By David Rath, CMT®, CFA® & Patrick Kalish, CFP®Q1: Did you know there are 21 ways to avoid the 10% penalty for taking retirement money out before age 59 ½?
A1: Yes, the IRS provides numerous exceptions to the early withdrawal penalty, with several designed for specific life events like buying a home, paying for college, or retiring early.
Q2: What is the "Rule of 55," and how can it help you retire early?
A2: If you leave your job in the year you turn 55 or older, you can access funds from that specific employer's 401(k) plan immediately without the 10% penalty—a powerful tool for early retirement.
Q3: Can you really use IRA funds to buy a house or pay for college without a penalty?
A3: Yes. You can withdraw up to $10,000 penalty-free from an IRA for a "first-time" home purchase (as the IRS generously defines it) and use IRA funds for qualified higher education expenses.
5 Key Takeaways:
- The Rule of 55 is a critical planning tool for early retirees, but it only works with your most recent employer's 401(k)—do NOT roll it into an IRA.
- Substantially Equal Periodic Payments (SEPP) allow penalty-free access at any age but lock you into a mandated, calculated withdrawal schedule for 5+ years with strict IRS rules.
- IRA Exceptions for Major Expenses: You can use IRA funds penalty-free for a first-time home purchase (up to $10k) and for qualified higher education expenses.
- Medical Expense Hardship: You can withdraw penalty-free for unreimbursed medical costs, but only the amount that exceeds 7.5% of your Adjusted Gross Income (AGI).
- Proceed with Extreme Caution: These are complex IRS provisions with permanent tax consequences. Always consult a qualified tax professional before making any early withdrawal.
Follow Us
- YouTube
Our Home Base
- Continuum Wealth Advisors
Disclosure
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
Continuum Wealth Advisors, LLC (“Continuum”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Continuum and its representatives are properly licensed or exempt from licensure.