Withdrawing early from your IRA

An early IRA withdrawal, typically before age 59 & 1/2, is subject to a 10% penalty tax on the taxable portion. There are several exceptions to this penalty. Reach out to your tax advisor with questions.

  1. Medical expenses: medical expenses exceeding 7.5% of AGI are exempt
  2. Higher Ed expenses: qualified educational expenses can be considered penalty-free withdrawals
  3. First-time home purchase: withdrawals up to a $10K lifetime limit are available for home acquisition costs.
  4. Substantially equal periodic payments: penalty-free withdrawals require adhering to specific conditions.
  5. Disability: withdrawals due to disability are penalty-free under specific conditions
  6. Long-term care: beginning in 2025, withdrawals for qualified long-term care are exempt
  7. Birth or adoption: withdrawals are possibly penalty-free up to $5K for birth or adoption expenses
  8. Emergency expenses: a new provision permits up to $1K annually for emergency expenses
  9. Disaster recovery: withdrawals are exempt up to $22K for qualified disaster recovery
  10. Military: active-duty reservists can withdraw penalty-free
  11. Terminal illness: withdrawals are penalty-free for the terminally ill
  12. After-death withdrawals: withdrawals are penalty-free after the death of the account owner
  13. Health insurance premiums during unemployment: withdrawals can be penalty-free for health insurance payments made during unemployment.
  14. IRS levies: if a withdrawal is to pay an IRS levy against the IRA account, it is exempt from penalties
  15. Victim of domestic abuse: withdrawals up to $10K are penalty-free for domestic abuse victims

Indiana 529 Credit

Indiana offers a credit of 20% of your contributions to a 529 account with a maximum credit of $1,500. If you have a child in college or private K-12, then contribute $7.5K to their Indiana College Choice 529 account, and then turn around and put that money back into your personal checking account. You don’t need to leave the 529 funds in the 529 to get the $1.5K Indiana tax
credit (i.e., save $1.5K of Indiana tax each year you do this). Contributions are now based on
an April 15th deadline. Meaning you can contribute towards the prior year up until April 15th of the following year as long as you apply the contribution to the prior year. To ensure you get the credit, you must have an Indiana 529 account. Indiana does cross reference the account contributions with your return and will deny the credit if the account isn’t an Indiana account.

IRS Extends Certain Relief from Required Distribution Penalties for Inherited IRA and Retirement Accounts to Cover 2024, But Indicates the Penalties are Expected to Apply for 2025

Inherited IRAs are subject to Required Minimum Distributions (RMDs) according to the SECURE Act. Per the SECURE Act, RMDs would be required for each of the first nine years following the decedent’s death with the remaining balance to be withdrawn in the tenth year. However, the IRS will not begin penalizing missed RMDs until 2025 at the earliest. The IRS announced that penalties will not be imposed on taxpayers who fail to take the RMDs on IRAs and Roth IRAs inherited from decedents who passed away after 2019 through year end 2024. While RMDs may not be required for 2024, we recommend that you strategize with your CPA on the best way to distribute funds from these accounts before the end of the tenth year so you don’t end up with a large tax impact in year ten.