Q. I could use some cash, but my only savings is in an IRA. Is there a way to get money out of my IRA without a lot of taxes? Can I borrow from it? — Scott in Eau Gallie
A. Scott, you cannot borrow from an IRA. Assuming no after-tax contributions were made to the account, any funds distributed from the IRA will be taxed as ordinary income. In addition, if you are younger than 59½, a 10% penalty is charged unless an exception applies.
Due to the recent storms, Brevard County is listed as a major disaster area by FEMA. This means that if you suffered a financial loss from that storm, you may remove within six months of the loss up to $22,000 from your IRA penalty-free. You will pay only the normal taxes.
Prior to what is commonly referred to as the SECURE Act 2.0, Congress had to pass legislation to allow for such relief. Now it is automatic based on the Federal declaration of a major disaster area.
If you did not suffer damage, you can only avoid the penalty if one of the following exceptions applies:
- You are totally and permanently disabled. (Generally, a physician must determine that you cannot do any substantial gainful activity, and your condition is expected to end in death or continue indefinitely.)
- You have unreimbursed medical expenses that are more than 7.5% of your Adjusted Gross Income.
- The distributions are not more than the cost of your medical insurance due to a period of unemployment. (You must receive unemployment compensation)
- The distribution is made under a series of Substantial Equal Periodic Payments. These are sometimes referred to as 72t distributions.
- The distributions are not more than your qualified higher education expenses. (Generally, tuition, fees, books, supplies, and equipment required for a student at an eligible educational institution. The education must be for you, your spouse, or the children or grandchildren of you or your spouse.)
- You use the distributions to buy, build, or rebuild a first home. (Maximum distribution exempt from penalty is $10,000)
- The distribution is due to an IRS levy of the IRA.
- The distribution is a qualified reservist distribution.
- The distribution is a qualified birth or adoption distribution. (Maximum $5,000 per birth or adoption)
There is more, much more in some cases to each of the above penalty exemptions. Additional details can be found in Publication 590. You should discuss the matter with your advisor before initiating a distribution.
Dan Moisand, CFP® has been featured as one of America’s top independent fee-only financial planners by at least 10 financial planning publications and practices at one of America’s most decorated independent firms. For more info, e-mail him dan@moisandfitzgerald.com, visit moisandfitzgerald.com or call Dan at (321)253-5400 ext 101
Originally published on FloridaToday. Read the original article here.