There are a number of ways that you can tap into your IRA and avoid the 10% penalty that normally accompanies IRA withdrawals for people under age 59 and 1/2.
First, if any of the withdrawals are for expenses related to a first time home purchase, education for yourself/spouse/children/grandchildren, or for unreimbursed medical expenses, then the 10% penalty tax will not apply. However, the withdrawal itself will still be taxed as ordinary income.
In the event that none of these apply, it is time to get a bit creative.
First, if you have a job, and are eligible for participation in your company's 401(k), then you can roll your IRA assets into your 401(k). This will allow you to then take a loan from the company 401k - assuming that the 401(k) allows loans. You need to check the Summary Plan Description (SPD) of the 401(k) and explore the section under loans to see if loans are available. Generally, 401(k) plans will loan up to 50% of the balance, or 50K, whichever is smaller. You must repay the loan, but you can charge yourself interest. This is known as the "Conduit IRA" strategy.
Second - if this strategy will not work, then you may use the 72T strategy. IRS section 72T allows you to take withdrawals prior to age 59 and 1/2 as long as you follow the rules. You must follow the rules exactly, or the penalties HURT!
All three methods require the use of a life expectancy or mortality table. The second and third methods require you to specify an acceptable interest rate.
Essentially, you are required to amortize the IRA over your life expectancy, or a series of substantially equal withdrawals over a period of NOT LESS than 5 years AND (notice AND) your age 59 and 1/2.
2) You must continue to take these withdrawals no matter what the market conditions, the IRA balance, or your needs. If you do not - then ALL previous withdrawals are assessed the 10% tax penalty plus penalties and interest if they apply.
If you HAVE to use the 72T schedule - PLEASE consult with a qualified financial advisor that understands the 72T strategy - AND a CPA. They will set up a separate IRA for you - one that "carves out" the 72T IRA - and set up withdrawals that meet the requirements.
Finally - IF you happen to have a 401k from a previous employer (NOT an active one) then you may withdraw assets from that 401k without any penalties whatsoever as long as you are not working for that employer - as early as AGE 55. The 10% penalty does not apply as long as you have achieve age 55. For this reason, we often recommend clients keep assets in old 401k's if the possibility exists that they will need emergency funds.
I hope you can find within these strategies a nugget of info that helps you in your particular situation. Good luck with it.
Jon Castle http://www.WealthGuards.com
If you have a Roth IRA, you can withdraw your contributions without a tax consequence.
Still, if you can, try to get another job or reduce your other discretionary expenses; you don't want to continue to be in this situation.
David, you can take 72T distributions, so that you would not be assessed the 10% penalty; you will still be obligated to pay income tax. Keep in mind that you are committed to take ‘periodic equal distributions’ for at least 5 years. My concern this that you do not want to substantially diminish what you have saved for retirement before you even get there.
It is easy for me to say, but try to find a way to get by without tapping into your IRA. Failing that, weigh paying the extra 10% once over the obligation to reduce your retirement savings over the next 5 years. I would be concerned about you outliving your money.