Getting Your Retirement Money Early -- Without Penalty
by
Twila Slesnick, PhD, Enrolled Agent
Just can't wait for your retirement funds? Painless advice on how to get your retirement money early.
Most people who have a retirement account -- whether a qualified plan through an employer or an IRA -- understand the importance of leaving these funds untouched until retirement age. If fear of being a penniless retiree isn't enough, the government enforces a number of rules and penalties to discourage early withdrawals.
If you take a distribution from your retirement plan early -- defined as before the day you turn 59 1/2 -- you will generally have to pay a 10% early distribution tax above and beyond any regular income taxes you may owe on the money. That extra 10% might be called a tax, but it looks and feels like a penalty. In fact, the early distribution tax is the cornerstone of the government's campaign to encourage us to save for retirement -- or put another way, to discourage us from plundering our savings before our golden years.
Of course, it's generally a bad idea to dip into your retirement plan early except in extraordinary circumstances. But when using your retirement funds is your only option, it's good to know that there are several ways to avoid the extra 10% tax on early distributions.
Substantially Equal Periodic Payments
The substantially equal periodic payment exception is available to anyone with an IRA or a retirement plan, regardless of age.
Theoretically, if you begin taking distributions from your retirement plan in equal annual installments, and those payments are designed to be spread out over your entire life or the joint life of you and your retirement plan beneficiary, then the payments will not be subject to an early distribution tax.
If you think you might need to tap your retirement plan early, this is the option that is most likely to work for you.
|
