Tax Tip:

If you have a tax-deferred retirement plan, you probably know they’re designed to encourage you to grow your savings by leaving your money in the account. Therefore, withdrawals before age 59 ½ generally trigger a 10% penalty. But suppose you need to access your funds. Traditional 401(k) plans list several exceptions to the penalty, including for the birth or adoption of a child, personal emergencies, and disaster recovery. However, the exceptions for IRAs are a little different. For example, they allow you to take penalty-free distributions for a first-time home purchase. You may take up to $10,000 to buy or build a first home, meaning that you haven’t owned a home in the past two years. Also, you can pay for higher education expenses. You may withdraw funds to pay qualified higher education costs for yourself, your spouse or your children. For students enrolled at least half-time, this includes tuition, fees, books, and room and board. And finally, certain unemployed persons can use funds to pay for health insurance premiums. If you’ve lost your job and received unemployment compensation for 12 consecutive weeks, you can take IRA distributions to pay health insurance premiums. 

Note: The amounts withdrawn will still be added to your taxable income, and additional rules and limits apply.