In a recent post titled, My Money Blog – Innovative Ways to Obtain Cash for a Downpayment, I discussed how it is possible to use funds from your IRA or 401k to assist in a “first-time” home purchase.
In investigating this, I actually found out that there are quite a few other ways that funds from your retirement accounts can be used without incurring the normal 10% withdrawal penalty.
However, before going in to these “innovative” uses for, let’s talk about what the age threshold is that you are able to withdraw funds from your retirement accounts under normal circumstances. This age threshold is 59 1/2 years old.
Aside from performing an IRA or 401k withdrawal at this “normal” age, government rules allow an individual to tap in to retirement (IRA and/or 401k) reserves for the following reasons:
- If the person works for the Army Reserve and is called in to duty after the date, Sept. 11th, 2001.
- To pay for medical insurance premiums if you are unemployed.
- For unreimbursed medical expenses (in other words, not covered by your insurance) greater than 7.5% of an individual’s income.
- If a person retires after age 55.
- If the person’s life expectancy is cut short (example – due to cancer, a person only has 1 year to live), and the distributions are made as part of equal payments over the account holder’s life expectancy.
- To pay for college/higher education. However, only IRA funding can be used for this purpose.
Truthfully, I was not aware of most of these uses that do not incur withdrawal penalties. However, it is very nice to know that rules are set up around retirement account withdrawals that can help individuals through hardships.
The use that sticks out most in my mind is the idea of using the funds to pay for higher education. For example, if I ever plan to take continuing education classes online or go back to school part-time through night classes, I’ll have another option for paying for the cost of tuition if funding in my cash accounts is running low.
Hope this information was helpful to you. Please let me know if you have any questions!
Keep on learning!
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