IRA Hardship withdrawals
The question that I cannot find a definitive answer to is as follows. Client has an IRA. Client loses his job. His income represented roughly 2/3 of the family income. Client’s Attorney has told me that client can take an IRA hardship distribution and avoid the 10% penalty. I have searched publication 590 and rule 72(t) but have not found loss of job will exempt the client from the 10% penalty. If we can avoid the 10% penalty on withdrawals from his IRA can we also avoid the penalty if we also withdrawal from the working spouses IRA. The money will be used as collateral for a loan to start a business. I don’t know if that matters but it might affect how the financial hardship is interpreted. Any help is appreciated.
Thanks
Permalink Submitted by BruceM on Thu, 2008-08-21 17:55
‘Hardship’ or In-Service withdrawals are only for employer sponsored qualified retirement plans, 403(b) and 457 plans whose plan documents allow for them, while the individual is working for the employer….and these withdrawals will generally be subject to the 10% early withdrawal penalty. Assuming you are speaking of a traditional IRA, there is no such thing as a general hardship withdrawal from IRA’s, SEPs or SIMPLE IRA’s that would exclude the 10% early withdrwal penalty. However, there are 10% penalty exclusions for specific expenses that may result from a personal hardship, to include
– payment of of health insurance premiums if one is unemployed and receiving unemployment benefits for at least 12 weeks
– payment of medical expenses that exceed 7.5% of AGI
– payment of qualified educational expenses for yourself or family
– up to $10,000 per lifetime for purchasing first time home for self or family…although this certainly doesn’t sound like a ‘hardship’
BruceM