Premature Distribution of IRA – Student Loans

L1: Premature Distribution of IRA – Student LoansGreetings to the board,
Well, I have $4,000 in an IRA; I had to roll-over my 401k into thistwo years ago after getting laid-off.This is doing nothing much for me but getting a $100 fee every year since I do not have time to mess with this. I would like to withdrawit to pay off some of my student loans. I received my form from Cigna and there are two options that Iam unsure of, but Cigna will notclarify them for me. Should I simply select the field labeled “Premature Distribution” orgo with “Premature Distribution is a Known Exception [IRS Section 72(t)]”? I assume the latter, but I do not want to do this incorrectly. I just want to avoid the 10% fee honestly. Is there anything else I should be doing or be aware of?
Any help would be much appreciated. Regards,David Anderson2004-01-24 22:08, By: David, IP: [4.41.186.190]

L2: Premature Distribution of IRA – Student LoansThere are several exemptions to the 10% penalty. You can review them by selectingExemptions in the left menu at http://72t.net -if you don”t meet one of the exemptions, you won”t avoid the 10% penalty.
To avoid the $100 charge, just consider moving the fund to another IRA Trustee/Custodian.
2004-01-25 13:16, By: Gfw, IP: [172.16.1.73]

L2: Premature Distribution of IRA – Student LoansHi Dave: One important element missing from your question is your present age. Another is where your IRA is located. I”ll assume you are not really close to retirement age with my comments; say mid 30”s for example, and that your IRA is with a major brokerage firm but we don”t need the name.
Since 72(t) is based on “life expectancy” and assuming you are basically young with a really small amount in your IRA, then if you set up a SEPP you are looking at many years of a very small annual distribution. This will become more of a nuisance that a benefit. So you need to evaluate the real costs facing you in this decision. $100 per year IRA Custodial fee is 2.5% of your $4,000 IRA. 10% of your IRA is $400 which is 4 years of custodial fees. For your small IRA you would probably do better working directly with a Mutual Fund company with custodial fees of $10 to $25 per year. You”ll probably pay a “transfer out fee” from your old custodian so add another $100 to the mix. If you”ve had the IRA for a few years then your probably have a fairly good loss, so consider converting to a Roth IRA as part of the transfer, then let it grow tax free.
The other option is take the money out, pay the taxes, penalty and close out fees and then pay down some bills like credit cards if your have a balance. Student loans have great benefits like low interest rates so I would look hard before paying them off just now.
Hope this helps.
Jim2004-01-26 07:45, By: Jim, IP: [68.1.147.61]