Current through Register Vol. 49, No. 10, October, 2024
Rule 5.26-51-414 - Penalty-Free Withdrawals from IRAs and Qualified Retirement PlansA taxpayer may make an early withdrawal of funds from an IRA or other qualified retirement plan free of the 10% penalty normally associated with such early withdrawals under the following two circumstances:
1 Payment of medical expenses in excess of 71/2% of the taxpayer's adjusted gross income (AGI). For example, a taxpayer's AGI is $40,000.00. 71/2% of $40,000.00 is $3,000.00. The taxpayer incurs medical expenses of $10,000.00 and makes an early withdrawal of $10,000.00 from his IRA to pay the expenses in full. The first $3,000.00 of the withdrawal would be subject to the 10% penalty. However, the remaining $7,000.00 would not be subject to the 10% penalty. IRC Sec. 72(t)(2)(B).2 The taxpayer is unemployed at the time the withdrawal is made and meets the following criteria: a The taxpayer has received unemployment compensation for at least 12 consecutive weeks;b The withdrawal does not exceed the total amount paid during the tax year by the taxpayer for premiums for health insurance coverage for the taxpayer, the taxpayer's spouse and children;c The withdrawal must be made in the year the unemployment compensation is actually received or the following year. IRC Sec. 72(t)(2)(D). The actual retirement funds withdrawn do not have to be paid towards the health insurance premiums to qualify for the break from the 10% penalty.