Tax Law (Questions About Taxes)/IRA withdrawal

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Question
Hello Mike!

Back in July I lost my job and I withdrew some funds from a 529 savings account I had for my daughter to pay some bills.  When I lost my job I transferred my 401k to my traditional IRA.  I am just now starting a new job job and racked up some credit card debt to pay bills.  Here's my questions:

1)  Can I be panlized for drawing funds from the 529 account?  Since that wasn't pre-tax money, I don't see why I would be penalized.

2)  Is there a way to draw funds from my IRA to pay off my credit card debt incurred while I was unemployed without incurring the 10% penalty?

Thanks in advance,
Chris

Answer
Chris:

The 529 college savings plan is based on the IRS tax code 529.  It accumulates with no tax liabilities on the accruing interest.  If money is drawn out for any purpose other than education it has a 10% penalty plus tax paid at the highest rate.  The same penalty for the IRA for early withdrawal.

Before withdrawing you must consult with the manager of your IRA an determine if your situation qualifies as a hardship withdrawal.  A hardship withdrawal is reduced to a written request and must be pre-approved by the plan manager prior to withdrawal of any funds.  You must check with your IRA fund manager to see if your circumstances will qualify you for a hardship withdrawal.

John

Tax Law (Questions About Taxes)

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John L. Tidwell

Expertise

Unemployment tax law both state and federal; determination of employer employee relationship; the usual 20 commonlaw factors for making that determination; and what makes me a liable employer.

Experience

Over 20 years of field audit experience with a state agency

Organizations
none

Publications
none

Education/Credentials
Degree in Accounting from Falls Business College

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