Alright, today we're talking about IRAs and some potential ways where you could get
money out of your IRA without paying a penalty on it.
So first off, remember with IRAs, when you put money into the IRA,
like if it's a typical IRA, or a traditional IRA,
or a traditional 401k, you get the deduction on that money when it goes
into that retirement account. So if you had $100,000 of income,
$10,000 goes into say your 401k,
you're only paying tax on $90,000 of income.
So there is some tax savings there. We're not,
we're not going to get into like Roth IRA versus traditional IRA,
but. But just the way that that works is years down the road,
that $10,000 that you put in. So you got the deduction when it first
went in, but years down the road, when you pull that money out,
your hope is that it's gone up in value,
right? So you pull it out 20 years later, hopefully it's worth $20,000 or
more, but by that point, but when you pull that money out of the
IRA, it's taxed at that point and whatever the value is,
whatever the cash is that you pull out at that point,
you're taxed at that $20,000.
So you get the deduction at 10, you're good,
you're not paying any taxes, it grows throughout the years until you pull it
out. And you're paying tax on $20,000.
What I'm talking about here today is not that,
it's not specifically with the tax, it's the penalty.
When you are not 59 and a half or older,
there's an extra penalty on top of the regular tax.
And it's a pretty scary thing. Like people will, like even if they don't
want their money in the IRA, they don't pull it out because of that
penalty. So what I'm going to or going to try to give you today
are just a bunch of different options on getting that money out of the
IRA without having to pay a penalty on it.
There are legitimate reasons, very legitimate reasons,
and documented reasons. Documented by the IRS, just completely allowed reasons to be able
to pull that money out without paying any,
like in some cases, any tax on it. But what we're talking about today
is without paying any penalty on it.
So first off, if you're over 59 and a half,
there's no penalty. It's just a regular tax. So we know that when that's
the thing. There is an option,
if you take, it's called substantial, what is it,
the substantially equal periodic payments.
If you take a certain amount of payments and you've got to set up
a plan, a payment, basically a plan to pull the money out.
Out of this account, in equal payments over a certain number of years,
there are some scenarios where you could take money out without the penalty.
You're still paying tax on it. If you are disabled,
and the IRS, like, they're very good at giving you,
or giving us like some information,
but they, they don't expand on it completely.
And there is some, you, sometimes you do need to operate in a grey
area. So the level of disability, that is kind of up for debate.
And if there is an audit, you might need to prove that there's some
sort of disability. But, it's a, it's a,
if you do have some sort of disability, like,
we, we've never, we've never seen the IRS contest it for that disability.
Uhm, if you have medical expenses,
so kind of related to that, maybe disability,
or if you just have regular medical expenses, if you're withdrawing money from an
IRA to pay for medical expenses, you'll pay tax on that money,
but you're not going to have that 10% penalty. If you need to pay
for health insurance, so a lot of it is medical related,
but if you need to pay for health insurance, you can pull that out
and not pay the 10% penalty. Paying for,
like, your first time, if you're a first time homebuyer,
you're up to $10,000. If you have,
uh, higher education expenses,
like paying for tuition, you wouldn't have to pay tax on that.
I've got a list here, let's go through a few more of those.
Yeah, IRS levy, if you're paying for taxes,
you don't have to pay the penalty on taxes if it's either the tax
bill for that year or prior year. If you are paying for costs related
to birth of a child or adoption of a child,
if you are in active military service and you need to pull money out,
you could avoid the 10% penalty. Those are ones.
There's one we've probably seen used more than any of the others and
it's an economic hardship. This one is completely in the gray area.
The IRS doesn't give you any or us like in the code,
in their letters. They don't give much clear information.
But if you're having an economic hardship, if you can't make ends meet,
if you can't pay rent or your mortgage or cost for your school,
living costs, like if you're just, if you lost a job,
like if something happened, there's a life change event.
And you can't afford the day-to-day costs,
that could potentially qualify as an economic hardship.
We've not seen the IRS contest these ever either,
uhm, but potentially they could and you would,
I would just recommend just documenting, like hey, I lost my job,
here's the email where I lost my job, or here's where I applied for
unemployment, or just, just whatever documentation you can get.
Cause as we all know, IRS auditors,
or if you don't know, IRS auditors, they love documentation.
They don't like to take people's word for it, but if you have some
sort of documentation and support and backup for it,
they love it. So, if you have some sort for
it, they love it.
So, if you have some sort for they love it.
or if you're CPA, you're working with us,
or whoever it is, and you're planning it strategically,
I wouldn't just go pull it out and hope for the best.
Just, you can plan for it. But that's,
that's it. Just hoping to give you more opportunities and use of those funds.
And the last thing I mentioned, I'll mention is,
remember you can do,
if you just want to get into different investments within your IRA,
remember you can do a self-directed IRA,
where that money, it can actually, it can be rolled over from your existing
IRA, say it's at Fidelity or Vantage.
Vanguard or E-Trade, whatever it is,
it's an IRA at one of those typical brokerages.
We're investing in mutual funds and stocks types of things.
If you're like, I just want to get into whatever it is,
real estate or crypto or oil or gas, there's ways,
a pretty simple way, you can roll the funds over from your typical IRA
brokerage, send it over to a self-directed IRA brokerage or
just a self-directed IRA company, and then your investment options would open up.
So, you don't have to withdraw the money, pay the tax,
hopefully avoid the 10% penalty. If all you want to do is just get
into a different investment, that's fine. You can normally do that within a self-directed
IRA. So, remember that. That is another option.
So, that's it for today about the avoiding or some,
some tips on not having to pay the 10% additional penalty
tax uhm on those IRA withdrawals.
But, have a good rest of the week.
