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For Doctors … Un-Locking the Money

By SHIKHA MITTRA; MBA, CFP®, CRPS®, CMFC®, AIF®

• http://www.RetireSmartConsulting.com Email: info@retiresmartconsulting.com

Withdrawing funds from a tax-deferred retirement account before age 59½ generally triggers a 10% federal income tax penalty; all distributions are subject to ordinary income tax.

However, there are certain situations in which you are allowed to make early withdrawals from a retirement account and avoid the tax penalty. IRAs and employer-sponsored retirement plans have different exceptions, although the regulations are similar.

IRA Exceptions

• The death of the IRA owner: Upon death, your designated beneficiaries may begin taking distributions from your account. Beneficiaries are subject to annual required minimum distributions.
• Disability: Under certain conditions, you may begin to withdraw funds if you are disabled.
• Unreimbursed medical expenses: You can withdraw the amount you paid for unreimbursed medical expenses that exceed 10% of your adjusted gross income in a calendar year. Individuals older than 65 can claim expenses that surpass 7.5% of adjusted gross income through 2016.
• Medical insurance: If you lost your job or are receiving unemployment benefits, you may withdraw money to pay for health insurance.
• Part of a substantially equal periodic payment (SEPP) plan: If you receive a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary, you may take payments over a period of five years or until you reach age 59½, whichever is longer, using one of three payment methods set by the government. Any change in the payment schedule after you begin distributions may subject you to paying the 10% tax penalty.
• Qualified higher-education expenses: For you and/or your dependents.
• First home purchase, up to $10,000 (lifetime limit).

Employer-Sponsored Plan Exceptions

• The death of the plan owner: Upon death, your designated beneficiaries may begin taking distributions from your account. Beneficiaries are subject to annual required minimum distributions.
• Disability: Under certain conditions, you may begin to withdraw funds if you are disabled.
• Part of a SEPP program (see above): If you receive a series of substantially equal payments over your life expectancy, or the combined life expectancies of you and your beneficiary, you may take payments over a period of five years or until you reach age 59½, whichever is longer.
• Separation of service from your employer: Payments must be made annually over your life expectancy or the joint life expectancies of you and your beneficiary.
• Attainment of age 55: The payment is made to you upon separation of service from your employer and the separation occurred during or after the calendar year in which you reached the age of 55.
• Qualified Domestic Relations Order (QDRO): The payment is made to an alternate payee under a QDRO.
• Medical care: You can withdraw the amount allowable as a medical expense deduction.
• To reduce excess contributions: Withdrawals can be made if you or your employer made contributions over the allowable amount.
• To reduce excess elective deferrals: Withdrawals can be made if you elected to defer an amount over the allowable limit.

Assessment

If you plan to withdraw funds from a tax-deferred account, make sure to carefully examine the rules on exemptions for early withdrawals. For more information on situations that are exempt from the early-withdrawal income tax penalty, visit the IRS website at www.irs.gov.

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About the Author 

Shikha Mittra has two decades industry experience working with physicians, dentists and top level executives in both public and private sector businesses and foundations; with several awards for her work. She was rated one of the top Financial Planners in the Country from 2006 – 2013. As a Certified Financial Planner®, she is also a Chartered Mutual Fund Counselor®, Chartered Retirement Plan Specialist® and Certified Cash Balance Consultant. Ms. Mittra is Adjunct Professor of Finance and Business, Rutgers University, New Brunswick, NJ; Regional Board Member of the National Association of Personal Financial Advisors NAPFA (2011-2013)  Board of Trustees of Financial Planning Association of New Jersey Chapter (2008-2011), Advisory Board Member of the ”Journal of Financial Planning” (2008-2009). Medical Economics listed her as a best financial advisor for doctors in 2012. Ms. Mittra is also an Accredited Investment Fiduciary® helping employers reduce their fiduciary liability by following global fiduciary standards of care in managing their retirement plans.

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OUR OTHER PRINT BOOKS AND RELATED INFORMATION SOURCES:

• PRACTICES: www.BusinessofMedicalPractice.com
• HOSPITALS: http://www.crcpress.com/product/isbn/9781466558731
• CLINICS: http://www.crcpress.com/product/isbn/9781439879900
• ADVISORS: www.CertifiedMedicalPlanner.org
• FINANCE: Financial Planning for Physicians and Advisors
• INSURANCE: Risk Management and Insurance Strategies for Physicians and Advisors
• Dictionary of Health Economics and Finance
• Dictionary of Health Information Technology and Security
• Dictionary of Health Insurance and Managed Care

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