In cases of severe financial emergency, it might make sense to pull cash from your traditional IRA – even if you’ll be subject to the 10-percent early-withdrawal penalty. Such crises are those that have serious negative impact to your life, family, and major assets.

What Constitutes a Financial Emergency?

Before resorting to your retirement fund, determine whether you can access other resources first. But if an IRA withdrawal is your only option, make sure it is to pay for one of the following:

• Legal fees and court costs to minimize the risk of job loss and incarceration.
• Necessary medical treatment for you, your spouse, or your child who is not covered by insurance.
• Legal fees associated with maintaining custody of a child, including the cost of adoption.
• Debt that must be paid quickly to avoid the partial or total loss of your vehicle, business, home, or other major investment. In some instances, Congress passes legislation to allow victims of serious natural disasters to receive distributions without paying a penalty.

Certain Expenses Could Save You 10 Percent

Depending on your situation, you might be able to avoid paying a penalty when making an early withdrawal from your IRA. Such circumstances include your inheritance and the cost of medical care, health insurance, and higher education.

Medical Care

Qualifying medical costs are expenses not reimbursed by your insurer. These must exceed 10 percent of your adjusted gross income. You must make the withdrawal in the same year you incur the cost.

Health Insurance

In order to be eligible for a penalty-free withdrawal, the cost of health insurance must pay for coverage for you, your spouse, or your dependents following a job loss. You must receive unemployment compensation for 12 consecutive weeks after becoming unemployed. You also need to receive the distribution in the same or subsequent year in which you received the unemployment benefits – and no later than 60 days after becoming re-employed.

Higher Education

Eligible higher education expenses include the cost of you, your spouse, and the children or grandchildren of you or your spouse to enroll at a college, university, or vocational school that participates in a federal student aid program. Expenses include tuition, school fees, books, and associated items such as lab supplies. Room and board are covered as long as the student attends at least half time.

Inheritance

An inheritance distributed to a beneficiary (or to your estate) are not subject to the 10-percent penalty if you pass before age 59½.

Home

Home-related expenses include a $10,000 distribution for an individual or $20,000 distribution for a couple to buy, build, or rebuild a first home. The home must be for you (and/or your spouse) or your children, grandchildren, or parents. First-time homebuyers are people who did not own a house in the two years preceding the sale of a new home or lot.

Disability

Eligible disability costs are those related to a lasting and continuous medical condition that prevents an individual from engaging in gainful employment. Proof from your doctor is required.

More Penalty-Free Situations

Other special circumstances could exclude you from paying the early-withdrawal fee. There may be additional forms and procedures associated with these scenarios:

• If you are getting a divorce, you can split the IRA between you and your former spouse without penalty.
• If you are converting a traditional IRA into a Roth IRA, you will not have to pay the penalty.
• If you are a member of the military called to duty after Sept. 11, 2001 who served for at least six months, you will not have to pay a penalty if you withdraw during active duty.

Ask an Accountant

An attorney or accountant can help you effectively access funds in a traditional IRA. They can also help you determine the necessary paperwork and can advise you on how taking a  withdrawal will affect your taxes.

Sign up for an IRA Services account if you would like to open a self-directed IRA today