**SPONSORED CONTENT BY CLARKSVILLE FINANCIAL PLANNING CENTER**

By Wayne Arnold

“I need money from my IRA, but I am under 59 ½. How can I avoid the penalty?”

From time to time, everybody encounters an emergency that can be fixed with money. Many people save money through their qualified retirement plans, such as a 401k through work or an Individual Retirement Account. Accessing these accounts to deal with an emergency might be the only option. If that’s the case, there are some rules you must follow, or you will incur a penalty courtesy of the IRS.

If you are 59 ½ or older, there is generally no problem getting money from your IRA. Just remember these distributions are taxable. Here is how to avoid the additional 10% penalty tax for early withdrawals. There are a few specific circumstances that will help you avoid the penalty:

• Paying college expenses for you, your spouse, your children or grandchildren.
• Paying medical expenses greater than 10% of your AGI.
• Paying for a first-time home purchase.

(This is not an exhaustive list, and there are further limitations set forth under IRS Code 72t.)

But what if you need additional income? If you are really desperate for cash, the IRS has another option: “Substantially equal periodic payments”.
You can choose from three different methods to calculate the amount you can withdraw each year. There are specific rules to follow; for example, the payments must continue until you reach age 59 ½ or for 5 years, whichever is longer – even if you no longer need or want the money. If you stop before then, you will be hit with a retroactive penalty tax that goes all the way back to when you first started receiving payments. So this decision should not be made lightly or without knowing the facts!

The IRS has a FAQ page for this: http://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments (A few minutes at this site should help explain why most people choose to work with a professional advisor.)

Navigating tax law can be complicated. Always seek professional financial assistance. Also bear in mind that while raiding your retirement account may solve an immediate financial problem, you could be jeopardizing your retirement income. Proceed with caution! Call the Financial Planning Center @ (931) 358-3961 for a free confidential consultation or visit www.ClarksvilleFPC.com.

The above information is a brief summary of our understanding of the current tax laws. FPC does not offer tax advice and we encourage readers to do their own due diligence, as everybody’s circumstances are different.