Generally, withdrawal of funds in your Traditional Individual Retirement Account (IRA) prior to age 59 ½ are called ‘premature’ and subject to an early withdrawal penalty of 10% unless an exception applies. There are several exceptions to the age 59½ rule including the following:
- Your unreimbursed medical expenses are more than 7.5% of your adjusted gross income.
- Distributions are not more than the cost of your medical insurance due to unemployment.
- You are totally and permanently disabled.
- You are the beneficiary of a deceased IRA owner.
- You are receiving distributions in the form of an annuity.
- The distributions are not more than your qualified higher education expenses.
- You use the distributions to buy, build, or rebuild a first home.
Medical Insurance Due to Unemployment Even if you are under age 59½, you may not have to pay the 10% additional tax on distributions that are not more than the amount you paid for medical insurance for yourself, your spouse, and your dependents if all of the following conditions apply:
- You lost your job.
- You received unemployment paid under any federal or state law for 12 consecutive weeks because you lost your job.
- You received the distributions during either the year you received the unemployment or the following year.
- You received the distributions no later than 60 days after you had been reemployed.
Disability Under IRS Code Section 72(t)(2)(A)(iii), the total and permanent disability of the IRA owner exempts the early withdrawal from the premature distribution penalty. A person is considered disabled if he is not able to participate in any substantial activity due to either a medically physical or mental impairment that is expected to be of long-continued and indefinite duration. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration. Typically, an individual would be required to provide proof of such a condition in order to qualify for exemption. (IRS Code Section 72(m)(7)). Beneficiary If you die before reaching age 59½, your IRA funds can be distributed to your beneficiary or to your estate without either having to pay the 10% additional tax.
If you have questions about Early Retirement Account Withdrawal in regards to a Minnesota Divorce proceeding, contact us for a free, confidential consultation at our Minneapolis, St. Paul or Eden Prairie offices.