If you've lost your job, tapping your individual retirement arrangement might be the only way to make ends meet. However, losing your job in and of itself doesn't give you an exemption from the early withdrawal penalty when cashing in your IRA. On the other hand, certain other financial situations -- which may arise because you lost your job -- might qualify for an exemption.
Unemployed Insurance Premiums
If you pay your own health insurance premiums while unemployed, you may be able to exempt that portion of your IRA distribution. To qualify, you must have lost your job and received unemployment compensation for at least 12 weeks under a state or federal program. In addition, you have to take the distributions in the same year or the year after you pay the premiums. Finally, the distribution cannot occur more than 60 days after you find a new job.
Typically, the exception for unreimbursed medical expenses isn't widely used, because medical costs covered by insurance don't count and the exception only applies to expenses exceeding a threshold percentage of your adjusted gross income. However, if you're unemployed, you might have significantly more unreimbursed expenses and a significantly lower adjusted gross income than usual. For 2012, the threshold is 7.5 percent, so for example if your adjusted gross income is $20,000, you can exempt a distribution equal to your medical expenses exceeding $1500.
Higher Education Expenses
If you've decided to go back to school to improve your job prospects, you can exempt certain costs if you attend an eligible institution. Eligible institutions include colleges, universities and trade schools that can participate in the federal government's student aid programs. Qualifying costs include tuition, fees and supplies. If you're enrolled at least half-time -- meaning you're taking at least half the number of credits the school considers a full-time load -- you can also include room and board.
If you've fallen behind on your taxes and the IRS levies your IRA, you don't have to pay the early withdrawal penalty on the amount the IRS requires you to take out. However, you have to wait until the IRS specifically levies your IRA. For example, if you owe $5,000 but the IRS hasn't levied your IRA, you can't avoid the penalty if you take the money out to pay your taxes.
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