IRA Retirement Income: Can You Withdraw Funds During A Hardship?

Pressing economic times are among us and many people are looking for any additional source of income they can find. IRA retirement income can be tempting when you are struggling to pay the bills and keep food on the table—especially now—during a serious credit crunch that has led to serious price hikes on every good and service.  

So what are the policies for withdrawing IRA retirement income during a time of hardship? Is it possible to take some of that money for immediate use without swallowing serious financial penalties? The quick answer is YES, you can take out money early due to a financial hardship, but it will also cost you to do so. Technically, you can take money out of your account at any time you wish, but there are penalties if you do so before you have reached the age of 59 ½. 

The penalty for withdrawing money before you have reached 59 ½ is equal to 10% of the total money withdrawn. For example, if you withdrawal $1,000 to make-up back mortgage to prevent your home from going into foreclosure, you will have the money needed to save your home but will be sacrificing an additional $100 for the early withdrawal penalty. In addition to that penalty, remember that you will also have to pay taxes on any money taken out of a traditional IRA.  

If you are taking out a substantial amount of money before you reach the required age for regular distributions, you have to decide whether the large penalty that comes with it is worth the penalties that you'll be paying. In many cases of true financial hardship, you may not have any other choice but to go ahead with the early withdrawal.  

There is often confusion about whether a loan can be obtained from an IRA or not. Many people will go into the bank or financial institution that handles their IRA account to ask for a loan, only to leave, frustrated, because they are not allowed to do so. For some reason, it has become a common misunderstanding that the banks have to give these loans since it is your money in there, but loans are not allowed to be drawn from IRA funds.  

If you are facing extreme financial hardship and need money right away, it is going to be impossible to get it out of your IRA account without taking the blow of the ten-percent penalty and paying all taxes due on the amount of money you withdrawal. This type of retirement account is not designed for early withdraw of funds. IRA retirement income is meant as exactly that: retirement income. Other types of retirement accounts are easier to pull money out of whenever you need it, but not IRAs. Using it early for purposes other than retirement is going to cost you a little extra, so make sure that whatever you intend to use the money for is really worth the extra expense.