An IRA account can be very flexible in addressing your retirement income needs. Many types of accounts have high fees for modifying your money before it matures and can have heavy restrictions on how you can use it, which can be frustrating for something sudden like a family emergency or an unexpected situation.
But IRA accounts have a few special rules that allow a little more mobility with your money. Here are five things you can do with your IRA account.
- Early Withdrawal without fees
An important benefit is the ability to withdraw money early if you need to. The standard rule is that if you withdraw money from your retirement account before the age of 59½, there is a 10% penalty fee on the amount of money withdrawn. This does not include the money withdrawn for state and federal taxes from the withdrawal.
However, there are certain exceptions. Unexpected medical costs that exceed 10% of your adjusted gross income and payments for health insurance after a layoff or job loss do not incur a 10% early withdrawal fee. In addition, any withdrawal used to pay for college is not subject to a penalty, and the IRS also allows for up to a $10,000 withdrawal for the purchase of your first home.
- Charitable Distributions
If you are age 70½ or older, you can send up to $100,000 from your IRA account to a charity without listing that amount on your income. That is important because you never have to pay any taxes on that amount if it is not part of your income. This is much cheaper than taking a distribution from your IRA and then donating that to charity.
- Help out your spouse
If you file a joint return with your spouse and one of you brings home less than or equal to half of your significant others annual income, then the person with the higher earnings can contribute up to the $5,500 dollar annual limit. This means that one spouse can contribute up to $11,000 for the year ($1000 more for each spouse over age 50).
- Different Tax Deadlines
One interesting benefit of IRAs is the late deadline for contributions. Most accounts’ annual limits end at the end of the calendar year, but you can contribute to your 2016 IRA amount until Tax day in April of 2017. This allows you more time to reach your limit for the year if you did not reach it in 2016.
- Direct Transfers
If you are switching jobs or retiring, IRA accounts allow for a rollover into another account. You can get a direct transfer from one trustee to another, which allows you to change the management of the account either to yourself or to a financial professional without paying any taxes. You can even transfer your 401(k) into an IRA without penalty the same way, as long as the money is transferred from account to account and not given to you in a check. That would result in 20% of the funds being withheld for taxes.
An IRA account is a very diverse asset that allows for a wider range of financial choices than many other retirement accounts. Be sure to be informed with what you can do with your money, and take advantage of the structures provided for you in this investment vehicle by the IRS.
Schedule a portfolio review with Miramontes Capital today to discuss how we can help you achieve your meaningful life through retirement planning.