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Early IRA access to avoid bankruptcy?

In the current economy, many older people are finding themselves out of work with few job prospects on the horizon. They may want to stay in their family homes and maintain their standards of living, but they might not be old enough to legitimately tap into their retirement funds for debt relief. Financial advisers have some important information for those in their late 50s who may be struggling to get back on their feet after a layoff.

First, it is important to know that you are allowed to remove money from your IRA before you turn 59½. You just have to categorize the withdrawals as substantially equal under the 72(t)/(q) distribution plan. Using that portion of the tax code, you can avoid the 10 percent early withdrawal fee that often discourages people from tapping into their retirement funds.

There are three ways in which you can receive an annuity from your IRA, and your financial planner can help you decide which would best suit your needs. If these payments are not sufficient for your needs, you can always consider whether the 10 percent withdrawal penalty is worth it to you. If you are able to stay afloat financially after considering the 10 percent forfeiture, you could consider taking even more money from your retirement account.

Furthermore, if your spouse is deceased, you may be able to file for early Social Security benefits in connection with that person's work history. If you are not already receiving survivors' benefits, you can also wait to claim more Social Security money based on your own work record when you turn 62.

Ultimately, older people who find themselves in dire financial straits are advised to draft a thorough budget and decide what they are willing to sacrifice to keep themselves financially solvent. This may include bankruptcy, according to some financial experts.

Also, ask your financial planner about available federal programs that could lower or suspend your mortgage payments.

Source: Fox Business, "IRA early withdrawal when you're unemployed?" Don Taylor, Sept. 26, 2012

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