Other special circumstances
Both traditional IRA and Roth IRA owners are eligible to withdraw up to $10,000 to assist in the purchase of a first home. Note that if two spouses are buying a home together, each is eligible to withdraw up to $10,000 for a total of $20,000. However, while this amount would be distributed penalty-free, the account owners would still owe income tax on the amount withdrawn if the account is a traditional IRA.
Another major exception to the early withdrawal penalty is qualified education expenses. For example, if you withdraw from your IRA to help send your kids to college, it is allowed under this exception. In fact, many people use their IRAs (especially Roth IRAs) as alternatives to college savings accounts like 529 plans.
Finally, there are a few circumstances that can qualify for hardship withdrawals, which can often avoid the 10% penalty that typically applies to early retirement withdrawals. Expenses that qualify as hardship withdrawals are true emergencies or unusual circumstances, such as:
- Unreimbursed medical expenses over 7.5% of your adjusted gross income (AGI)
- Qualified expenses if you're a military reservist called to active duty
If you're considering withdrawing from your IRA, think about whether your expenses fall into one of the big three expense categories: health, education, or housing. If they don't, and it's not a true emergency, you might consider alternative methods of covering the expenses.
Putting it all together
Your IRA is intended for one thing: retirement. There are ways to access IRA funds early if you read the fine print and adhere to restrictive rules. In general, though, it's best to use your IRA for long-term funds that you don't immediately need and certainly not as a vehicle for borrowing or short-term liquidity.
This is all to say that for best results, you should keep things simple and use these accounts for their intended purposes.
