IRA Withdrawal Rules and Exceptions

There are many situations in which you may need to withdraw some of your retirement savings for immediate needs, and there are endless reasons that you may want to do this. Unfortunately, the IRA withdrawal rules forbid any money being taken out unless you have reached age 59 and a half.

Of course, if you really want to go ahead and take an early partial withdrawal you can do so, but you will be facing rather harsh penalties from the Internal Revenue Service. The first penalty is a ten-percent charge on the total amount of the early withdrawal. In addition, you will also be penalized with a bill for any taxes due on the portion of the savings you withdrew.

Together, these penalties make an early withdrawal very harmful to your IRA balance. In many cases, you will be giving up much more money than what you originally planned to withdrawal, and unless it is a truly urgent situation, it is advised that you wait until you have matured to the proper age to receive disbursements. There are, however, a couple exceptions to the IRA withdrawal rules.

Higher Education

The most often-used exception to early withdrawal is to fund higher learning for you, a spouse, child, or grandchild. Most colleges, universities, and vocational schools will qualify for IRA withdrawals - as long as the school is accredited and meets certain guidelines for federal student loans. It does not matter if it is a public or private school, as long as it meets the loan guidelines.

Besides using the early withdrawal for tuition expenses, it can also be used toward other supplies, such as books and any special equipment needed for your area of study. If the covered student attends the school at least half time, it is also acceptable to use your withdrawal funds for living expenses such as rent and bills. Certain expenses that are unique to a special-needs student can also pass IRS approval and be paid for with your IRA withdrawal.

Your First Home

There are exemptions in the IRA withdrawal rules that allow you to use a certain amount of your retirement money toward the purchase of your first home. Technically, it doesn't even have to be your very first home purchase. As long as you have not owned a primary residence within the last two years, you will qualify as a first-time home buyer and be granted up to $10,000 of your IRA funds towards the purchase.

If you are married, you can both borrow that amount from your individual IRAs and put it towards the purchase of a single home. Even more lenient yet, these funds can be used for your children or grand children's first homes as well.

You will need to time your withdrawal so that you can honor one last set of IRA withdrawal rules: From the date you take the withdrawal, you will have only four months to use the money toward the approved expenses. This includes closing on or building your new home, so make sure to take it out when you are close to the final steps of the process.