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Taking money out of your IRA or 401(k) before you are 59 1/2 is rarely a very good idea. But if you find yourself in certain sticky situations, you can do it without facing the 10 percent penalty normally levied against anyone who is younger than 59 1/2.

Here are rules, with some commentary by Ben Barzideh, wealth advisor at Piershale Financial Group in Crystal Lake, Illinois.

Rules for taking money from your IRA

First-time homebuyers. A first-time homebuyer can take $10,000 from his or her traditional IRA without paying the 10 percent penalty. In the case of a husband and wife, that can add up to $20,000. This is one of the few OK reasons to take money early from an IRA, Barzideh says. “Over time, a home is generally an investment whose value will grow — and you have to pay rent anyway.”

College tuition. If the money is used to pay for college for a spouse, children or grandchildren, the penalty is waived. Even though this sounds like a plausible reason, Barzideh says it is rarely a good idea. “Students can borrow to pay tuition, but you can’t borrow to pay for your retirement.”

Paying medical insurance. If you are unemployed and receiving unemployment insurance, then you can take money from your IRA to cover medical insurance costs. You must be unemployed for 12 weeks before you can do this.

Unreimbursed medical expenses. Only the portion that is greater than 10 percent of your adjusted gross income — and deductible from your federal income tax — can be covered by taking money from your IRA. As Barzideh says, “It’s a quirky rule.”

Disability. If you are totally and permanently disabled, then you won’t owe the 10 percent penalty.

IRS taxes due. The IRS has to actually place a levy against your IRA account to get its payment. Voluntary withdrawals don’t count.

Rules for taking money from your 401(k)

  • Leaving work early. If you retire, quit or get fired at age 55 or later, you can take out money with no penalty. But the rules are complex, so be sure to get expert help.
  • 72(t) distributions. You can take out substantially equal distributions no matter how old you are. Barzideh warns that you must do this for a minimum of five years or until you hit age 59 1/2, whichever comes last. If you don’t make that minimum because you ran out of money, you’ll owe penalties on the whole thing.
  • Take a loan. You can borrow against your 401(k) plan if your 401(k) provider allows it — generally half the available balance up to $50,000. You pay it back to yourself with interest over no more than five years — or you’ll face the penalty.
  • Unreimbursed medical expenses. Just as with an IRA, only the amount that exceeds 10 percent of your adjusted gross income can be paid from your 401(k).
  • Disability. Again, you won’t owe the penalty if you are totally and permanently disabled.
  • Money divided by the courts in a divorce settlement. If the judge gives your ex-spouse part of your 401(k), you don’t pay a penalty.

Here are four reasonable reasons to borrow from your 401(k).

[Editor’s note: An earlier version of this blog post incorrectly stated that when taking 72(t) distributions, you must take out money for a minimum of five years or until you hit age 59 1/2, whichever comes first. In fact it should have said “whichever comes last.”]

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