Roth Ira

Fallen on hard times? Need extra money for an emergency? Wanting to get cash for a home down payment? Well, while an early withdrawal from your IRA is not the ideal situation (because the money was set aside from retirement, not anything else), it might be a very good alternative…depending on what you want to use it for.

So, let's say that you have been hoarding away a chunk of money for your retirement. You want live a nice long time in the golden years of your life without the need to work, and, in particular, without the need to put on a blue vest and welcome people to their neighborhood super-center. But suddenly, you need cash and you need it bad. Can you withdraw money from your IRA early without having your angry Uncle Sam slap you around? Maybe.

It all depends on your situation. Here is the first scenario. You've gone to your local bookie and you feel lucky. You put $15,000 on (let's make this really outrageous) Laura Bush to enter and win the Men's Championship at the year's most prestigious tennis tournament, Wimbledon. You really think she can pull it off, but wait she's not even in the tourney. Not surprisingly, by the time the tournament is over, the bookie has sent his muscle to come and collect, but you don't have the money.

You remember you have that IRA account just sitting there waiting for you to turn 59 and a half years old. Because you like your thumbs, you decide that an early withdrawal from your IRA is the thing to do. But be mindful, this early withdrawal from your IRA will not only cost you the money you need to pay off your bookie, but you'll then owe your Uncle Sam.

"Why?" you ask. Well those are the rules. Uncle Sam has made certain concessions for you when it comes to your IRA. With a traditional IRA, Uncle Sam has said you can put money away with out paying taxes on it. For a Roth IRA, he's allowed to put away money that will never be taxed again. But the one big rule is that you cannot touch the money until you're 59 and a half if you do, you'll have to pay the taxes plus a 10% early withdrawal fee.

But there are certain circumstances that Uncle Sam will give you a by on. Here is a list of those:

1) Education-Uncle Sam can appreciate that you want to educate yourself, your spouse, your kids, or your grand kids. For this he'll let you off without a penalty.

2) First Home-Uncle Sam will allow you take out up to $10,000 towards the purchase of a first home. He feels that a first home is a worthwhile investment and he wants to help you out. For a traditional IRA, you can take the money anytime. For the Roth IRA, you'll have to wait until the account is at least five years old.

3) Excessive Medical Bills-Uncle Sam knows you've had it hard lately and doesn't want to you to have to suffer through the pain of losing money to taxes because you need to take care of yourself. If you have medical expenses, he'll let you pay those using an early withdrawal from your IRA without penalty.

4) Medical Insurance while Unemployed-If you're unemployed, you still need medical insurance. Go ahead and take an early withdrawal from your IRA…it's penalty free for this too.

5) Total and Permanent Disability-If you become totally and permanently disabled, you can take your money free of charge…Uncle Sam knows you'll need it.

6) Distribution to Beneficiary due to death-You're beneficiaries are most likely going to get with an inheritance or estate tax when you shuffle of this mortal coil, Uncle Sam sees no reason to tax this money twice and further exacerbate an already stressful situation.