IRA PRE 59 1/2 DISTRIBUTION- HARDSHIP
Was the definition of hardship withdrawals from IRAs changed during 2009 to assist unemployed individuals? I have a couple (both in their 40’s) who are both unemployed now – one has been unemployed for almost 3 years – and the only substantial liquid assets they have is in their IRA accounts. Is there a way to characterize the distribution in such a way as to avoid the 10% penalty?
Permalink Submitted by Alan Spross on Mon, 2010-01-11 19:37
A hardship distribution technically only applies to employer plans as a means of making certain in service distributions. For IRAs, the usual penalty exceptions apply and they have not been expanded recently.
The exceptions are listed on p 53 of Pub 590. The most obvious ones apply to medical premiums if unemployement was collected, and for medical costs in total in excess of 7.5% of AGI. For a permanent situation, a 72t plan could work, but these are risky when started in the 40’s since they must follow rigid rules until 59.5. Still, in certain unique situations the 72t plan is another option, for at least a portion of current expenses.