New IRA & 401K Early Withdrawal Rules Starting in 2023 | Early Retirement Guide
Jason 0 Comments Retire Wealthy Retirement Planning Tips for Retiree's
President Biden just signed a 1.7 trillion dollar government spending bill on December 29th which includes the 53 billion retirement bill that will have a lot of changes starting in 2023 24 and 25. a few weeks ago I did a video on the new 401K perks and Rule changes this video is to focus on the withdrawal rule changes for tax penalties for your IRA and 401K generally speaking if you touch your retirement before you turn 59 and a half there will be a 10 tax penalty and there are already exceptions to the 401k or IRA 10 penalty rule If you experience a significant life event but there are four new rules that I want to make sure that you're aware of however unless it is a matter of life and death I would never recommend or encourage you to make an early withdrawal from your retirement accounts taking money out of your retirement accounts should be your very last resort my wife and I have a fully funded emergency fund that will cover at least six months of expenses if one of us loses job becomes physically incapacitated or has any significant life event and we will always deplete our cash and investment accounts before we touch our retirement accounts because every dollar I withdrawal now will have severe consequences and possibly even delay my retirement but I want I want to make sure you guys are aware of the rule changes so you can educate yourselves about your retirement accounts but anyway I'm gonna put chapters in this video so you can feel free to jump into the video that applies to your financial situation and if you need help with your personal finances like creating a budget or savings plan to achieve your financial Independence you can't schedule a free one-on-one 20-minute Financial coaching session by visiting fivestarchy.com coaching the first provision that got added under secure act 2.0 was a terminal illness and it surprises me that it took Congress this long to waive the 10 penalty for people with terminal illnesses the law defines terminally ill as an illness or physical condition that can be be expected to result in death within 84 months of a doctor's assessment which will be substituted for 24 months so if you haven't reached the regular retirement age of 59 and a half and you're diagnosed with a terminal illness with a qualified physician then the IRS will forgive the 10 penalty but you'll still owe federal and state income taxes this is on page 2280 of the 4100 page Consolidated Appropriations Act of 2023 the next provision they added was to allow domestic abuse victims from a spouse or domestic partner to withdraw up to ten thousand dollars in retirement funds within a year of the incident this rule will take effect in 2024 and I'm not sure why we can't start this now but this is on page 2253 of the spending bill in section 314.
It's up to ten thousand dollars or fifty percent of the present value of the non-forfeitable accrued benefit of the employee under the plan and the one-year period begins on any date on which the individual is a victim of domestic abuse by a spouse or domestic partner the definition of domestic abuse is on page 2254 under subparagraph two now I've seen comments in the in a past video about how stay home spouses or parents can't have any retirement funds as a stay-at-home parent or spouse you can actually set up what's called a spousal Roth IRA if you and your spouse are filing your taxes jointly I did a video on that and I encourage you to share that video with people you know and look if you're a victim of domestic violence or abuse please call the National Domestic Violence Hotline at 1-800-799-7233 people who have physically abuse their spouses or partners are some of the biggest pieces of crap or just scums and I witnessed domestic abuse as a child growing up and no one ever deserves to be abused and you should never be responsible for your partner or spouse's abuse of actions let me move on to the next topic before I get all spun up the next two Provisions are pretty much the same but starting in 2024 you won't get penalized with joining retirement funds for certain emergency expenses and these emergency expenses must be considered unforeseeable or immediate costs related to personal or family emergencies you can withdraw up to one thousand dollars a year and I mentioned that in the 401K video but you're going to be waived to 10 penalty as well you still have to repay the initial distribution of one thousand dollars within three years unless you make regular contributions to your 401k that eventually reach your withdrawal amount and the other one is allowing Americans to withdraw up to twenty two thousand dollars without the 10 penalty in the case of a federally declared disaster so hopefully you don't have to go through this but if you ever experience a loss of Home due to a tornado hurricane or earthquake and need more than what you you're having your emergency fund the 22 000 is taxed as gross income over the next three years instead of one year so instead of being taxed twenty two thousand dollars you could be taxed for just seventy seven thousand three hundred every year for the next three years starting on page uh 2285 of the spending bill it tells you that it needs to be a federally declared disaster so if you had a flood like I did last year for my broken toilet bowl you're not going to be qualified for the special distribution so we came home from a four day vacation to a flood at home because our toilet bowl cracked right down the middle and I will show you the video right here and it took us about four months to completely replace the flooring drywalls and painting and this is why I strongly encourage you to get my financial Independence resources including spreadsheets for savings and Investments for absolutely free by visiting.com contact you can also check out the fire such as shop if you're looking to start your own YouTube channel and I have all of my books and equipment at 5 shopping and here are the existing exceptions to the 10 penalty for those under the age of 59 and a half the first one is using your IRA for higher education expenses the IRS will actually waive your 10 penalty uh if you use your IRA funds to pay qualifying higher education costs for you your spouse your children or even your grandchildren the eligible cost will include tuition fees books and other school or education related expenses and keep in mind that this is for students in a college University or Vocational School in my opinion you should not use your IRA to fund your you or your children's education who have the 529 College savings plan to do exactly that you should treat your IRA as your retirement account right just remember that your children's College will last four years but your retirement is forever the next one is the first time home buyer exemption with your IRA and the definition of a first-time homebuyer is actually someone who hasn't owned a home in the last two tax years you can withdraw up to a lifetime maximum of ten thousand dollars without the ten percent penalty from your IRA and according to the IRS you have to use ten thousand dollars within 120 days of the distribution you can use the money for yourself your spouse or your child if you and your spouse are both first-time homebuyers you can each withdraw up to ten thousand dollars from your IRAs without penalties my advice is not to use your IRA to buy a home because once again you could significantly delay your retirement if you withdraw that ten thousand dollars now the better question is how long will it take you for you to save ten thousand dollars in a high yield savings account the next existing provision is to use your IRA to pay for your health insurance premiums if you lose your job and you have to provide proof of unemployment compensation from the federal or state unemployment program for 12 consecutive weeks you owe also have to make the IRA withdrawal without the 10 penalty within the same year or the following year that you received unemployment compensation and the other waiver is a distribution to cover your medical expenses we all know how broken the U.S Health Care system is but you can't withdraw up to 7.5 percent of your annual adjusted gross income to pay for your unreimbursed medical expenses so for example if you your adjusted gross income was one hundred thousand dollars in 2022 then you can make a withdrawal of up to 7500 to cover your unreimbursed medical expenses if you got your medical statement in 2022 and you didn't make the payment until 2023 it will still count for the 2022 tax year so I just want to make sure you're aware of that the IRA withdrawal will also have to happen in the same year in 2022 to get the penalty waiver and if you just had a baby or adopted a child each parent can actually use up to five thousand dollars per birth or adoption from their retirement accounts the withdrawal just has to be the same year your child was born or the date you legally adopted your child and and the other provision that's been around for a while is waving a 10 penalty for reservists who got orders or called into active duty for at least 180 days if you need to make a withdrawal for some reason you have to provide proof of your military orders and make sure the withdrawal day happens on or after the first date of your orders let me know in the comment section down below if you are a veteran I'm an Air Force veteran myself and I've helped many veterans get out of debt budget and save for their future if you ever have any questions you can always hit me up on Instagram and just say hi on Instagram or go to Fireside chat.com contact to schedule a one-time private coaching session for completely free but if you want to just stay on YouTube and you want to watch more videos about the new 401K rules and how I'm saving to retire early by age 45 be sure to check out these two videos so with that said I appreciate you watch my video don't forget to subscribe and I hope to see you in the next video have a good one [Music] thank you
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