IRA withdrawal after having a baby - what expenses qualify?

So if I understand right, both my wife and I could each withdraw $5,000 from our respective retirement accounts for the same child? And we don't need to show receipts for baby stuff? That's helpful to know. Also, is there any time limit on when we can repay it back to our accounts if we want to?

Yes, each parent can withdraw up to $5,000 per child from their own retirement accounts. So for one child, you and your wife could potentially access a combined $10,000 penalty-free. And correct, you don't need to track or show receipts for specific baby-related purchases. As for repayment, the IRS originally didn't set a specific time limit for repaying the funds, but recent guidance has established a three-year window from the date of the distribution to make repayments if you want to restore your retirement savings. Repayments are treated as rollover contributions, so they won't count toward your annual contribution limits.

How exactly does the service work? Do you just upload your documents and it tells you what to do with them? I've never heard of this before.

I'm always skeptical of these online tax tools. Did it actually save you money compared to just using TurboTax or something? What makes it different?

You upload your tax documents and it scans them for things human eyes might miss. In my case, I uploaded my 1099-R from the IRA withdrawal, and it immediately identified it as potentially qualifying for the birth exception and explained what I needed to do. It's different from TurboTax because it's focused specifically on analyzing and explaining your tax documents rather than just filing them. It helped me understand how to properly report the withdrawal and claim the exception, which saved me hundreds in penalties I might have accidentally paid. It also explained some baby-related tax credits I qualified for that I hadn't even considered.

Wait, how does this actually work? I thought it was impossible to get through to the IRS. Are they just using some kind of auto-dialer or something?

Sorry, but this sounds too good to be true. The IRS phone system is notoriously terrible. I find it hard to believe any service could reliably get through when millions of people can't. What's the catch?

It uses a combination of technology that tracks IRS phone line availability and sophisticated dialing systems. It's not just an auto-dialer - it's specifically designed to navigate the IRS phone system and holds your place in line so you don't have to stay on hold forever. No catch really - they just solved a problem that frustrates millions of people. I was skeptical too until I tried it. The service calls you back when they've reached an agent, so you're not tied to your phone for hours. I was able to ask all my questions about the birth distribution rules while my baby was napping instead of wasting a whole day on hold.

Is it a year from the actual birth date, or can you also do it before the birth in anticipation? Like could OP take the distribution now before the baby arrives?

The IRS guidelines specify that you can take the distribution up to one year BEFORE the birth/adoption or up to one year AFTER. So the OP could absolutely take the distribution now before the baby arrives as long as the birth happens within a year of the withdrawal. I'd advise keeping documentation of the birth date to match with the distribution date if ever questioned. We missed the window after birth, but anticipating and doing it beforehand is totally legitimate according to the rules.

Thanks for this! Is there anything specific we need from the hospital or doctor to prove the birth date if we get audited? Birth certificate? Or just normal documentation everyone gets?

This is really helpful information! I'm the original poster and had no idea about the Form 5329 requirement or that I could take the distribution before the baby arrives. That actually works out perfectly since I'd prefer to have the money available ahead of time rather than dealing with paperwork during those first crazy weeks with a newborn. One quick follow-up question - when I contact my IRA custodian to request the distribution, should I specifically mention it's for a qualified birth distribution? Or is it better to just take a regular distribution and handle the coding myself when I file taxes? I want to make sure I don't create any unnecessary complications.

@PaulineW I'd recommend being upfront with your IRA custodian about the purpose when you request the distribution. Most major custodians are familiar with qualified birth distributions now and can code it appropriately on your 1099-R, which will save you headaches later. If you just request a "regular" early distribution, they'll likely automatically apply the penalty code, and then you'll need to override it when filing taxes. While that's totally doable, it's cleaner if they code it correctly from the start. When you call, just say something like "I'd like to request a qualified birth or adoption distribution under the SECURE Act provisions." Most custodians have specific procedures for this now. If the representative isn't familiar with it, ask to speak with someone in their retirement services department who handles these types of distributions. Good luck with everything, and congratulations in advance on your new arrival!