The Individual Retirement Arrangement, more commonly referred to as an IRA, allows people to put away pre-tax income for retirement during their working years. This tax-advantaged plan provides incentives for long-term savings. But there are some advantages to withdrawing money from an IRA.
Here three times to consider withdrawing money from an IRA:
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1. It Can Help You Buy Your First House
IRA distributions specifically for buying your first house avoid the early withdrawal penalty from the IRS. This benefit can also be used to help a child or grandchild buy a home, Charles Schwab adviser Carrie Schwab-Pomerantz said
. The maximum withdrawal without penalty is $10,000. Because a house is generally considered an investment, some advisers say taking money from your IRA might be a good idea.
2. Help in Financial Crisis
There are several circumstances in which the IRS recognizes
that you might need the money now rather than later. In these situations, the 10 percent penalty does not apply. It may be an advantage to withdraw money from your IRA to pay for high medical bills or education. These are among the expenses exempt from penalties. Any money that comes out of an IRA, even if it is penalty free, will be considered as income.
3. If You Don’t, the IRS Will
At age 70 ½ you must start taking a withdrawal from your IRA. If you do not, the IRS will take a penalty tax. A delay on taking your distribution past April 1 of the year after you turn 70 ½ may result in extra income tax, CBS News reported
. The exact timing is best figured by a financial professional.
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