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10 Ways You Could Avoid the 10% Early Retirement Penalty

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21.09.2021

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Retirement is something each of us must plan for. Not surprisingly, you want to make sure you’ll have enough income to last throughout your lifetime. Theoretically, if you plan well, you could even retire early. Perhaps you’ve sold your business for a profit, maximized your retirement account contributions, invested in non-qualified accounts, and own multiple rental properties.

In such a perfect scenario, you could take a blended distribution from various accounts and investments, allowing your money to continue to grow in tax-sensitive ways. On the other hand, taking distributions from your retirement accounts before age 59½ could cause you to owe the IRS a 10% early distribution penalty. However, there are a few conditions in which the government will waive that 10% early retirement penalty.

Before I continue, I’d like to make one thing clear. The purpose of this article is to inform you of ways you might be able to avoid the 10% income tax penalty. If you take money from your qualified retirement accounts early, you will still pay ordinary income taxes on that money. You cannot avoid that.

With that out of the way, let’s take a look at some of the ways you might be able to avoid the early retirement penalty.

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Life is full of surprises. Some are great, but others can cause major problems. Oftentimes, surgeries, hospitalizations and accidents are unpredictable circumstances. Adding to the stress of these moments are the significant medical expenses they can bring. Although your health insurance should offset some of those costs, you could still owe hundreds or even thousands of dollars out of pocket. What do you do if you’re on a tight monthly budget? How do you pay for those expenses if billing companies won’t accept small monthly payments?

Fortunately, you can make a withdrawal from your traditional IRA for significant medical expenses without having to pay the 10% early withdrawal tax penalty. Keep in mind that there are a few stipulations. You don’t want to withdraw small increments of........

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