The restrictions on IRA distributions are numerous and often quite hefty, but these measures are necessary to preserve the integrity of the investment. The original purpose of the investment was to encourage people to save towards their retirement, and to ease some of the burden placed on government institutions when it comes to providing for the needs of people who are no longer able to work for a living. There are pre-planned provisions in place for people who may need emergency funds, and there may also be times when shifting money into other investments may be advantageous.
One of the potential reasons for early withdrawal from an IRA could be in an emergency medical scenario. While no “one-size-fits-all” provisions exist that address the withdrawal of as much money as you need to cover for medical expenses, certain provisions are usually factored in that allow a specific percentage of medical expenses to be covered by a tax-free withdrawal from your IRA. There are other provisions that cover withdrawals for the purpose of medical expenses in case you are not able earn an income from working. The best way to avoid these types of situations is to budget properly and obtain the appropriate insurance.
Early withdrawals are also allowed for family-related situations. For example, most IRAs contain provisions for the deduction of educational fees on behalf of immediate family members (e.g., children and grandchildren). This provision is especially helpful in light of the fact that so many educational courses are paid for using borrowed funds. This can leave a student in a precarious situation if they are not able to find a job after they have completed their education. Many times, family members are not able to pay for these student loans, so these scenarios can definitely merit this type of provision.
There are also concessions that apply to IRA distributions for the purpose of making a down payment on a first home. Very few real estate deals can be made without some type of initial down payment from the buyer, and the percentage of successful transactions has dropped significantly due to the economic recession. Saving or raising money for a home purchase can be one of the most difficult problems for people who are just starting out with building a family, so it helps tremendously when you are able to make a tax-free withdrawal from your IRA to achieve this end.
Some of the distribution allowances even apply to deceased IRA owners. Certain limited concessions apply to the beneficiaries of IRA owners. Establishing an IRA as a smart tax strategy for future generations is a complex matter, and will require the assistance of a financial professional. You will need to have your individual situation assessed by a financial adviser, who will be able to provide you with options regarding the best way for providing for your children and/or dependents.
If you are not quite sure what the exact stipulations are for IRA distribution, it will be beneficial for you to find out what your rights are under the provisions of the investment. If you have already set up an IRA, you will need to ask the brokerage for the exact terms and conditions of the particular investment you hold. People who are still searching for the most appropriate IRA will need to make sure that they do their due diligence before signing up for any one investment vehicle. Make sure to ask about the nature and scope of various IRA distribution scenarios.