If your money is locked away in an ever-decreasing 401(k) or IRA account and you need it to stay afloat, relief may be on the way. Heavy penalties, including regular income tax as well as a 10% additional penalty usually apply to early distributions from these plans. However, there are special loan provisions and hardship withdrawal rules you may be able to take advantage of in these tough economic times which will lessen the penalty. You also can withdraw certain amounts for an immediate and heavy financial need. You can withdraw from IRAs for extraordinary medical expenses, medical insurance premiums if you are unemployed, and college tuition expenses. First-time homebuyers may withdraw $10,000 from IRAs to put down on a house. If you have had to take money from your retirement plan or if you will need to do so in the immediate future, contact me to find out if you may qualify for a hardship exemption.
Another important note. One of President-Elect Barak Obama’s tax proposals is to allow a withdrawal from a retirement plan of up to $10,000 in 2008 penalty-free. This provision may be enacted early in the Obama Administration with retroactive effect!