If you’re forced to tap retirement funds early, you’d better know the rules.401ks, IRAs and other pretax retirement savings accounts are now the most common way to save for retirement, and millions of Americans pour money into them every year.Unfortunately, millions more take early withdrawals from these accounts due to hardship, loss of a job or other money woes.If you take a distribution from an IRA or a 401k before the age of 59 ½, you’re assessed a 10% penalty tax in addition to any other taxes you owe. According to a very revealing IRS tally of tax returns, in 2011 Americans paid over Billion in early withdrawal penalties alone!If you desperately need the money, the 10% early withdrawal penalty is probably not much of a barrier.However, before you pay up you should know some useful exceptions and loopholes in the laws that govern retirement accounts.These exceptions may make it possible for you to tap your retirement savings in a time of need without having to pay the IRS for the privilege.
The easy way to solve this problem was to contribute to a Roth IRA.
Because my contributions to the Roth were after-tax, I knew I could withdraw them immediately with no penalties.
Any earnings on the contributions would still be restricted, but knowing that I could access some of my retirement money was a comfort.
Unfortunately, most of my money was going into a 401k, and there was no Roth option.
In an effort to feel more comfortable while salting away my earnings, I put together a list of situations wherein I could access my money if I really needed it.