What Should You Know about IRA
Worried that you don’t have a 401k? Don’t worry – the Individual Retirement Account (IRA), is the perfect solution for you as it is one of the best investments you are going to make so as to enjoy the fruits after retiring! There are various types of IRAs available right now, which offer a myriad of tax benefits, but withdrawal regulations are quite strict so that investors don’t misuse the privilege.
Rules of an IRA
You can keep depositing funds into an IRA, although the maximum amount that can be deposited in a month for people below the age of 50 is $5000, with an additional catch-up benefit of $1000 provided to those who cross 50. As per regulations, the criteria for withdrawal without penalty is you have to be 59.5 years old or above, and the money in the IRA account has to be there for at least 5 years. But there are certain exceptions when these two conditions don’t have to be fulfilled that allow qualified withdrawal where penalties are not imposed such as:
Medical Emergency Exceptions
If there are un-reimbursed medical expenses involved that exceed 7.5% of the account holder’s adjusted gross income then the IRA funds definitely qualify for withdrawal without penalties. It can be done if a medical insurance premium needs to be paid for a particular period of time when the account owner is not employed. Distributions can also be made if the account holder is permanently disabled that affects his ability to work and earn.
Education and Homeowner Exceptions
Want to use IRA funds to pay for higher education and college tuition for your children, or grandchildren? This is definitely a condition that warrants some cash, which is why no penalties are incurred. If you want to buy or build a home for the first time, a maximum of $10,000 can be withdrawn penalty-free.
If a sum is distributed among beneficiaries of the estate when the account holder is deceased, it is exempted from penalty. This is because the funds come from annuity payments that are part of an IRA account’s holdings. Any payments owed to the IRS for underpaid or unpaid taxes, along with the associated penalties can be covered from money that comes from an IRA account. The account holder doesn’t have to pay any penalty for such cases.
Plan your retirement savings early with the help of an IRA – it provides quite a lot of advantages as compared to other investment schemes. To know more about funding your retirement, use this calculator.