Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account
Speak with a Broad specialist:
(800) 395-5200Schedule a CallOpen an Account

July 15, 2014

Tap Your Retirement Fund Without Incurring a Penalty

Maybe it’s just a sign of the times, but in recent years we’ve seen a spate of articles dealing with early withdrawals from retirement plans. People are out of work, expenses are going up, and few people still have rainy day funds that they can tap. In general it seems that the proverbial ends have grown further apart than Senate politics. With that in mind, here are five ways that an account holder can legally access his/her retirement funds without incurring any penalties.

1. Have a really good reason.

If the reason why you’re withdrawing funds from your retirement plan is a good one, (i.e. the IRS has deemed it an appropriate cause,) then you can withdraw funds in support of that cause. Officially sanctioned causes include buying your first home, paying huge medical bills, or financing a college education. For the official IRS rules on the subject, you can take a look here. The rules get ticky, (amounts and IRA/401(k) variations,) so ask your accountant before taking the plunge.

2. Gamble with an IRA Rollover.

If your cash needs are truly short term, then you can try your luck with an IRA rollover. When an account holder rolls over the funds from one IRA into another, there is a 60 day window where the funds may be used for non-retirement purposes. The catch with this technique is that if you blow it and don’t get the funds into the new IRA within 60 days, you may also succeed in blowing up your retirement account. Also keep in mind that this maneuver may only be done once a year.

3. Take a loan from your 401(k).

According to the IRS code, a 401(k) plan holder may access his/her funds to take out a loan (if eligible) up to $50,000. This money can be used for any purpose whatsoever. Subsequently, the loan must be paid back within 5 years with a nominal rate of interest. Now, just because the IRS says it’s allowed doesn’t mean that your specific company will allow it. For those who find that they can’t access their funds in this way, there may still be a workaround. If you have any kind of self-employed income, you can roll over your retirement funds into a self-directed Solo 401(k), and then access the loan from there.You can learn more about taking a loan from a Solo 401(k) here.

4. Just take it from an inherited IRA.

Obviously this method assumes that you’re the beneficiary of an inherited IRA. If you have it, great! Otherwise there’s no honest way to put yourself in this position. (Although the dishonest way would make for a good episode of “Murder She Wrote.”)

5. Go the SEPP route.

SEPP – Substantially Equal Periodic Payments – allows IRA account holders to make successive withdrawals for any reason. The catch is that you can’t just take out the money you need and then stop. Rather you have to keep making regular withdrawals for 5 years or until you turn 59 ½. The rules and amounts of these withdrawals get really complicated. If you have no other alternatives except for SEPP, quickly find yourself a solid advisor and let them do the hard calculations.


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