The Infamous 10% Penalty...AVOIDED!
If you have an IRA, you have probably been told that "You can't take your money out before age 59 1/2 because if you do, you pay an extra 10% excise tax on the amount you take out." This is usually true. But whoever told you that probably didn't know about IRS Publication 590. This publication explains three allowable methods of AVOIDING (that's right, avoiding, not deferring or minimizing) the 10% penalty.
You can completely avoid the penalty if you take periodic payments from the IRA, at least annually, according to one of three formula methods. Each method produces a slightly different annual payment. If you need help with the calculations, please call us at ALI Actuarial & Retirement Plan Services.
Life Expectancy Method. The payment is based on the remaining life expectancy of the IRA owner, or on the joint life expectancy of the owner and beneficiary. The life expectancies are given in a table published by IRS in Publication 590.
Amortization Method. Same as the Life Expectancy Method, except that you can amortize the payments over your remaining life expectancy. This will result in a larger annual payment than above.
Annuity Method. This method uses the actuarial annuity value, as though you would purchase an annuity from a life insurance company. You will need the help of an actuary for this one.
IRA owners have many options of taking their money out of the IRA. Avoiding the 10% penalty is a huge savings over the life of the plan. We have specialized programs for doing these calculations. If you have more questions, please contact us at ALI Actuarial & Retirement Plan Services.