Your retirement is a great way for you to help save up for the expenses that you are going to have later in life. Many people find that they started way too late in life and are now stuck with a small retirement that just isn’t going to cover it. The earlier you start out with a good retirement plan, the easier it is for you to have enough money and having the ability to stop working earlier on.
There are many people who choose to take out their retirement a bit earlier than usual. They may have lost their jobs and need some help, need to purchase a new home, and so much more. In most cases, you are going to have to pay extra to take this money out if you are under the age of 59 ½. But there are a few times when you can take the money out and avoid some of the major penalties, helping you to get ahead in life and still save money.
Educational Expenses
Many people have decided to take out some of their retirement in order to help them pay for their educational expenses. This is a great idea if you aren’t able to get financial aid, have lost your job, or need a little bit of help to finish paying it off later in life. Keep in mind that taking out this money is going to raise your tax bracket, making it more difficult to get financial aid again later on. You should really only do this if you are sure that it is going to help you put the money back into the account fairly quickly when you’re done with school, or when you don’t have any other options.
First Time Home Buyer
In some cases, you may be able to withdraw on your retirement early if you are a first time home buyer. There are some specific rules in place for doing this though. You have to make sure that this is your first home, that you need help getting your down payment or some other part of the house, and you may even have to agree to some kind of payment plan so that the money goes back into your plan and can support you as you get older.
Not all first time home buyers will know about this option and just because you are a first time home buyer doesn’t mean you should use this option. There are still going to be tax implications and other things to worry about when you take the money out, even for your first home. Plus, you are taking money out of your retirement that could be hard to put in again and will place you a bit behind when you’re planning out retirement.
If you are considering taking out some of your retirement in order to help pay for some of your first home, make sure to know everything that this is going to entail. You are going to be able to avoid some of the fees, but there are tax implications and other issues that you should watch out for to stay safe.
Other Reasons
In most cases, you are not going to be able to take out your retirement early unless it is one of the reasons above. This means that you are going to have to pay the penalties and the taxes on the money that you withdraw. The two situations that are listed above are meant to help out those who need it the most. The penalties and taxes were put in to deter people from taking out their retirement early and is meant to help encourage you to keep that money in the right place.
If you feel that you qualify for another reason to take out your retirement early without all the fees, you should talk to your tax professional as soon as possible. This will help you determine early on whether you are going to qualify and will avoid issues and miscommunication later. Keep in mind that you will probably not receive the tax breaks and the freedom from penalties unless the reason falls into one of the categories above.
Using a Professional
No matter what your reason is for taking out your retirement early, you need to make sure that you discuss this option with your tax professional. The fees and taxes on this money can be pretty steep and it is always best if you take the time and work with someone who can really explain the process. In addition, you may be able to qualify for another kind of loan or option that is cheaper in terms of fees and can help you out better than ever before while keeping the retirement plan in place. Never try to do this work on your own and instead rely on those who know how to navigate this system best.
If you feel that you need to take your retirement early in order to help with one of the many things that are on your to do list, make sure to hire a tax professional before getting started. There can be some heavy fees and taxes for those who are taking out their retirement early, and you aren’t going to be happy when you find out that the money is going to other uses. Contact us today to figure out if your retirement fund is the right way to help you out right now.
Joseph J. Gormley CPA