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IRA hardship withdrawal
Old 12-08-2005, 04:37 PM   #1
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IRA hardship withdrawal

In December 2004, my wife was diagnosed with an occult breast cancer and has been unable to work due to treatments and surgeries. She has had a very difficult recovery ( she became septic after her radiation treatments and her surigical site had to be reopened and 10 days of IV antibiotics, she also has an major emotional crisis requiring hospitialization) and will have reconstruction surgery in May of 2006. She was not able to work during chemo, radiation thearpy and the multiple surgeries and there is a question if she'll be able to return to her job as a nurse.

I probably should have reduced my 401K contributions this year to help offset the loss of income due to her health. But, I didn't.

In addition to my wife health, we also have a condo in Port Charlotte, Fl that was heavily damaged by last year's storms (mainly Charley and Frances) and deemed unihabitable by the assessment office.

I need to withdraw $10,000, due to repairs to the condo and loss of income due to my wife's health. My thoughts are;

1. Withdraw the money from our IRA's -- I initially thought I could claim a hardship due to wife's illness, but in reading the IRS publication -- it seems she needs to be permantely disabled -- which at this time, I'm not sure of -- a lot will depend on her future surgeries, treatment and outcome. Recently, there was a ruling allowing Katrina residents the ability to withdraw from retirement accounts without incurring a penalty. Does anyone know if such a provision was provided for the Florida Hurricanes, Charley and Frances.

2. Tapped my employer sponsored 401K by taking out a loan against my account.

3. I'm not sure of other options.


Anyone, been there, done that? I appreciate any recommendations.

I was hoping to retire within two years, but with my wife's health, I'll probably need to stay in the workforce until 2009. We are both 51. I'd like to retire tomorrow, not knowing what tomorrow might bring.

Thanks!!!
dwk
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Re: IRA hardship withdrawal
Old 12-08-2005, 05:36 PM   #2
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Re: IRA hardship withdrawal

For the IRA, you will have to pay income taxes on any distribution. The key is whether you can avoid the 10% penalty. The rules are in publication 590. http://www.irs.gov/publications/p590/ Generally there is a 10% penalty if you withdraw money before you are 59 1/2. Even if you receive a distribution before you are age 59, you may not have to pay the 10% additional tax if you have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. As you mentioned, there is a disability exception, but it has pretty onerous requirements.

Also, even if you are under age 59, you do not have to pay the 10% additional tax on distributions that are not more than:

-The amount you paid for unreimbursed medical expenses during the year of the distribution, minus

-7.5% of your adjusted gross income for the year of the distribution.

You can only take into account unreimbursed medical expenses that you would be able to include in figuring a deduction for medical expenses on Schedule A, Form 1040. You do not have to itemize your deductions to take advantage of this exception to the 10% additional tax.


I don't know if this will help, as it requires significant medical expenses.

One more thought on the IRAs--if you made contributions in 2005, I think you have up until your tax returns are due to remove those contributions.

Your 401(k) plan may allow hardship withdrawals, but I think the 10% penalty is still due. Therefore a loan probably makes more sense.

I don't know if there was any hurricane relief for the storms you mentioned.
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Re: IRA hardship withdrawal
Old 12-08-2005, 05:40 PM   #3
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Re: IRA hardship withdrawal

You might look into whether your wife could do early distributions from her IRA under the substantially equal distribution rules of 72t of the Internal Revenue Code. A good explanation is found here: http://www.retireearlyhomepage.com/wdraw59.html
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Re: IRA hardship withdrawal
Old 12-09-2005, 08:05 AM   #4
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Re: IRA hardship withdrawal

I know I am on my third reply here, but did you check to see if there are any hurricane relief programs in Florida or through FEMA to help with the condo repairs? If not cash outright, maybe low interest or no interest loans. Then you wouldn't have to tap your retirement money.
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Re: IRA hardship withdrawal
Old 12-09-2005, 08:39 AM   #5
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Re: IRA hardship withdrawal

Martha:

Thanks for all of your suggestions!!!

dwk
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Re: IRA hardship withdrawal
Old 12-09-2005, 09:12 AM   #6
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Re: IRA hardship withdrawal

Nothing to add, except my sympathies to you and your wife, and wishes for a speedy and full recovery. Seems many of us who live long enough will get a visit from cancer...
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Re: IRA hardship withdrawal
Old 12-09-2005, 12:17 PM   #7
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Re: IRA hardship withdrawal

DWK - is your wife on disability? If she was unable to work due to a medical condition, she would be eligible for State disability. I went through the same 8 years ago. I took four months off (for surgeries, chemo) and then went back to work. I had my radiation treatment during lunch hour at the hospital each day for six weeks and then went back to work. Eventually, your wife will feel better. It is not easy to go through but eventually your life returns to 'normal." Many organizations out there for support - Y-Me, American Cancer Society and hospitals have support groups. Good luck to you and your wife.
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