7. Are hardship distributions allowed from an IRA?
Not exactly. There is generally no limit on when an IRA owner may take a distribution from his or her IRA, although there may be unfavorable tax consequences, such as an additional tax on early distributions. However, certain distributions from an IRA that are used for expenses similar to those that may be eligible for hardship distributions from a retirement plan are exempt from the additional tax on early distributions. Specifically, a distribution from an IRA for higher education expenses or to finance a first-time home purchase is exempt from the early distribution tax.
(Code § 72(t)(2)(E),(F))
Medical expenses. You can use IRA distributions to pay for unreimbursed medical expenses that exceed 10 percent of your adjusted gross income without incurring the early withdrawal penalty. "The distribution has to be in the same year as the medical expense," says Kathleen Campbell, a certified financial planner for Campbell Financial Partners in Fort Myers, Fla.
If a physician determines that, because of a mental or physical disability, you are unable to engage in any gainful employment, you are allowed to take penalty-free distributions from your IRA. Also, the disability must be expected to result in your death or determined to last for an indefinite period. These distributions can be taken for any purpose. Check with your IRA custodian/trustee regarding their policy for handling distributions due to disability, as some require proof of disability in the form of a physician's certification.
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