Can I take money from my IRA without penalty?

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Q. I’m 52, not working and severely disabled. Can I begin taking funds out of an IRA without paying the 10 percent penalty?
— Disabled

A. There are exceptions to the rule.

Generally, if you withdraw money from your IRA before age 59 ½, you would have to pay a 10 percent early withdrawal penalty and ordinary income tax on the amount withdrawn.

While you cannot avoid paying income tax, there are exceptions to the 10 percent penalty rule, said Matthew DeFelice, a certified financial planner with U.S. Financial Services in Fairfield.

Disability is one of the exceptions.

“If you become disabled due to an illness or injury to the point that you cannot participate in gainful activity or employment, you can quality for an exemption to the early withdrawal penalty,” DeFelice said. “However, you will need to be prepared to prove you are disabled to the IRS.”

According to the IRS website, “You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.”

Among the other exceptions to the 10 percent penalty are if you have to pay medical expenses that are more than 10 percent of your adjusted gross income, DeFelice said.

“This may come into play even if you do not meet the IRS definition of being disabled,” he said.

Then there’s health insurance.

IRA distributions can be taken without penalty to pay for health insurance for you, your spouse and your dependents following a period of unemployment, he said.

“To qualify, you need to receive unemployment compensation for 12 consecutive weeks due to job loss,” DeFelice said. “The distribution must be taken in the year you received the unemployment compensation or the following year, and no later than 60 days after you have been reemployed.”

You can also take from your IRA without penalty to pay for qualified higher education expenses.

“IRA early withdrawals used to pay qualified higher education expenses on behalf of you, your spouse, or the children or grandchildren of you or your spouse, are exempt from the 10 percent penalty tax if they were paid to an eligible educational institution,” DeFelice said.

A first-time home purchase is another exemption.

You can take a penalty-free IRA distribution of up to $10,000, or $20,000 for couples, to buy, build or rebuild your first home or the first home of you or your spouse’s child, grandchild or parent, DeFelice said. For the purposes of avoiding the IRA early withdrawal penalty, the IRS considers you to be a first-time homeowner if you or your spouse did not own a home during the two-year period leading up to the home sale.

There are two other options.

One is taking 72(t) payments, an exception named for Internal Revenue Code Section 72(t).

“This lets account holders withdraw money from their retirement accounts at any age, penalty-free,” DeFelice said. “Distributions must be the same amount once per year, and you must stick with the payment schedule for five years or until you reach age 59 ½, whichever comes later, unless you are disabled or die.”

There are 3 IRS-approved methods for calculating the 72(t) withdrawal amount.

The final way to take withdrawals from an IRA without penalty is one you have no choice over. Beneficiaries of an inherited IRA are required to take withdrawals.

“If you die before age 59 1/2, your traditional IRA can be distributed to a beneficiary or your estate without incurring the 10 percent penalty,” he said. “However, if a spouse inherits the IRA and elects to treat it as his or her own, it may become subject to the 10 penalty penalty.”

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