SEP IRA Withdrawal Rules
- When purchasing a first home, the SEP IRA owner may borrow funds that are used as part of the acquisition cost of the home. The funds can only be used for acquisition, not repair or good faith monies. The withdrawal must occur within 120 days and cannot exceed $10,000 in distributions over the lifetime of the SEP IRA. In addition, the monies withdrawn can be used for the house of the SEP owner or his spouse, the child or grandchild of the SEP owner or the grandchild of the SEP owner's spouse.
- SEP funds can be used for college expenses. Eligible educational institutions include any college, university, vocational school or other post-secondary educational institution. These post secondary institutions must be eligible to participate in the student aid programs administered by the Department of Education. This allows for a wide variety of school choice.
- SEP owners must withdraw 10 percent of the value of the SEP IRA beginning at age 70. These withdrawals may begin as early as age 59 without penalty. Failure to withdraw funds after the mandatory age will result in a very steep IRS penalty of 50 percent of the value of the required amount not taken. Withdrawals before the minimum age will result in ordinary income taxes being withdrawn plus a penalty of 10 percent of the total amount taken out.
- Unlimited withdrawals are available for persons who are deemed to be disabled. Withdrawals for disability will still require payment of ordinary income tax, but no penalty payment is assessed. Persons taking disability withdrawals must provide proof of the disability from either a doctor or institution that can attest to the illness.
- Individuals can withdraw SEP IRA monies for un-reimbursed medical expenses above 7.5 percent of their gross income. They can also make withdrawals to pay for medical insurance.
