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There’s No Such Thing as IRA ‘Hardship’ Withdrawal

Question: About three years ago, I withdrew $2,500 from my individual retirement account to help purchase a condo. I dutifully paid income taxes and a 10% penalty on the withdrawal. But now I hear there could be a “hardship” case exemption that would allow early withdrawals for the purchase of a primary residence. Is that so? And what do I do about claiming the exemption now?--R. P.

Answer: Unfortunately, you don’t do anything, because there is no hardship withdrawal provision for IRAs yet. Congress has been talking about it for years, but so far there’s nothing on the books. The exemption to which you are referring applies only to 401(k) savings programs at work, which are not as generous as you have been led to believe.

The Internal Revenue Service allows taxpayers to withdraw funds from their 401(k) tax deferred savings plans for certain “hardships"--a catch-all category that includes illness and the purchase of a primary residence. However, the withdrawals are still subject to taxation as ordinary income. Further, if the withdrawal is made before you turn age 59 1/2, you will be slapped with a 10% penalty for early withdrawal.

Common Law Spouse May Get Some Benefits

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Q: I have been living with my boyfriend for about 10 years. We are both about 50 years old. Am I eligible to collect his Social Security as a common-law spouse when he dies?--M. B.

A: Your eligibility to collect Social Security as a common-law spouse depends primarily on where you live. Some states recognize common-law marriages; others, including California, do not.

However, even if you don’t live in a state that recognizes the legal standing of your union, you may still be eligible for spousal Social Security benefits. According to a spokesman for the Social Security Administration, if you have temporarily lived, or perhaps even just spent a few weeks in a state recognizing common law marriages, the agency may recognize your claim. Our experts say you should contact your local Social Security office for advice.

Home’s Value in Past Can Be Determined

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Q: Over the years, you have referred to the fact that the IRS allows taxpayers to upgrade the cost basis of community-owned assets, such as a house, to their fair market value on the date one spouse dies. But how does one reach back six or more years to determine the value of a house in a way the IRS will accept? Property inflation varies so greatly from one area to another that I doubt a general inflation factor would be accepted.--E. T. L.

A: You’re right. A general inflation factor, or even a cost-of-living index adjustment for a particular geographic area, isn’t precise enough. You will need comparable sales figures for homes in your neighborhood for the period in question.

Although this might sound difficult to find, a qualified real estate broker, real estate appraiser or probate referee should be able to locate the information you need. In fact, you may discover that if you list your home for sale with a real estate broker, the realty may provide the information at little or no fee.

If Benefits Seem Small, It May Pay to Check

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Q: The company for which I have worked for the past 17 years will be closing in the immediate future. I have received written notice of the amount of my share of the company’s “defined benefit plan” that I can expect to receive. However, this amount seems to be about half of what it should be. Where do I go from here?--D. K.

A: Your first stop should be your employee relations department where you should ask why your perceptions of what you are owed are so different from what the company is now saying. Perhaps there is a simple explanation. One possible reason is that what you thought you were entitled is an amount you were told you would get if you continued working at the company until age 65 at a certain wage scale. Now, however, the company is closing and you won’t be working there until retirement, so your benefits are lower.

If this is not the case, you can pursue the matter further by filing a claim under the benefits claims procedure of your pension plan. The procedure should be detailed in the fine print of your plan. Follow it carefully.

Finally, you may be covered by the Pension Benefit Guarantee Corp. Again, check the fine print of your plan. If you are covered, and you feel that your plan has not been terminated correctly, you can write to the corporation at 2020 K St. NW, Washington, D.C. 20006. Mark your envelope to the attention of the Coverage and Inquiries Division.

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Early Retirement Can Affect Payout

Q: I understand a wife gets half of her husband’s Social Security benefits whether or not she has worked. Further, if the wife has worked and her own Social Security benefits are less than half of her husband’s, she gets the larger of the two amounts. Well, my husband and I both retired at age 62 and all these years I have been getting my own Social Security, which is less than half of his. How can I have this corrected?--J. S. C.

A: You probably don’t have a problem to be corrected. A spouse who retires at age 62 is entitled to just 37.5% of the Social Security benefits of the other spouse. The answer here is that your benefits are probably higher than 37.5% of your husband’s benefits. If they weren’t, you would be getting 37.5% of his benefits.


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