You have been making investments for a secured future by making contributions into IRAs (Individual Retirement Account). IRAs are basically of two types – traditional IRAs and Roth IRAs. You can start taking out money from your IRAs, preferably at your retirement age. At this time you will be able cash out an IRA to meet your expenses. IRAs give good tax benefits to people. In case of a traditional IRA, your contributions to the account are not taxed, but when you cash out an IRA, that amount will be taxed as income. Whereas on the other hand, in Roth IRAs you would be able to cash out without paying taxes, but then your contributions will be taxed.
Now, sometimes it may happen that you may need to cash out your IRA before the age when you can get tax benefits, which is 59 1/2 years of age. If you cash out the IRA before this age, you will be levied an additional 10% penalty, apart from the taxes applicable in case of a traditional IRA. But in Roth IRAs if you have completed five years of contributions, then that penalty may not apply if you have turned 59 1/2. But there are certain conditions under which you will not be penalised with that 10% penalty fees. These conditions include:
First time home purchase– If you making or buying your own home, then you can cash out certain amount from the IRA, without being penalised, but then make sure that you use that money within 120 days or you may have to pay the penalty.
Qualified educational expenses– You can take money from your IRA, if you have to pay for higher education if your children or even grandchildren.
Disability – This should not be happening to anybody, but if you get disabled, then you can cash out an IRA, with the proper report of the doctor saying that you may not be able to work because of your disability and that this is a permanent condition.
Health Insurance premiums– If you have to pay for your health insurance and you are unemployed, then also you can take out money from the IRA without the 10% penalty being levied on it.
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