It is important to be aware of the rules regarding IRA withdrawals, in order to save on costly fees and penalties. While you have been saving all along for retirement, life can have some unexpected surprises that may cause you to need your retirement money a little sooner than anticipated.
You may find yourself in need of taking an IRA hardship withdrawal which would allow you to take penalty-free distributions if you qualify. It is crucial to understand that IRAs are meant to have withdrawals taken when you have reached retirement, and if you do not qualify for a hardship withdrawal you may incur an additional 10% penalty on withdrawn funds.
There is a bright side, and that is that with most IRAs there is always an exception to the rule, an if you meet specific extenuating circumstances you can take early distributions penalty-free. IRA hardship withdrawal rules govern these distributions and whether you will or will not be charged a penalty.
IRA Hardship Withdrawal Eligibility
The first step is to figure out if you qualify for an IRA hardship withdrawal. Keep in mind that you will have to be able to prove that you are experiencing specific circumstances considered eligible as hardships.
It is important to honestly discuss your current situation with your IRA provider, as they can more accurately assess your unique situation. If you use online broker ETrade, you will be able to consult with a trained IRA specialist that can assist you every step of the way.
Remember that not every IRA is qualified for all types of hardships. Your retirement plan may provide for only certain expenses such as medical, with other withdrawals subject to early-withdrawal penalties.
IRA Hardship Withdrawal Claiming And Proving Hardship
If you are in fact qualified to make an IRA hardship withdrawal, the next step is to find out the steps outlined by your individual IRA provider for carrying out your request. Each provider utilizes their own strategies for accepting and approving an IRA hardship withdrawal.
The process may be as simple as a letter telling an honest account of your situation, with supporting documents to prove your hardship. You may also be required to complete a form given to you by your IRA provider.
You should also first determine the amount of money you expect to need from your IRA account. Carefully consider and stay within any withdrawal limits, and try and leave as much money as you can in your IRA so as not to severely damage your retirement nest egg any further.
IRA Hardship Withdrawal; Worth The Setback?
It can not be stressed enough that an IRA hardship withdrawal should be your last resort, as cutting into your retirement funds can means several years of playing “catch up” with your retirement savings. It is vital that you also continue to keep your retirement in mind, even if you have suffered a recent financial emergency.
Carefully consider the possible negative impact an early withdrawal on an IRA can have on your future, and your time frame to recoup those funds. The retirement specialists at ETrade are available to assist you in deciding which avenue is best for you.