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I'm unemployed and withdrew my IRA funds to pay for my medical insurance. Will I have to pay the 10% penalty?

Form 5329, exception 7 allows an exception for an unemployed person who does both of these:

  • Takes distributions from an IRA
  • Uses the distribution to pay for health insurance

To avoid the 10% additional tax, you must have:

  • Lost your job
  • Received unemployment compensation paid under a federal or state law for 12 consecutive weeks
  • Received the IRA distributions during either the year you received the unemployment compensation or the following year
  • Received the IRA distributions no later than 60 days after you were employed

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