Early withdrawals from atraditional IRA before age 59 1/2 generally incur a 10 percent penalty tax onthe taxable portion of the withdrawal. There are several exceptions to thisrule that can help you avoid the penalty under specific circumstances. Below, Ihave outlined the key exceptions that may apply to your situation.
Substantially equal periodicpayments. You can arrange for a series ofsubstantially equal periodic payments. This method requires careful calculationand adherence to strict rules but allows penalty-free withdrawals.
Medical expenses. Withdrawals for medical expenses exceeding 7.5 percent ofyour adjusted gross income, or AGI, are exempt from the penalty.
Higher education expenses. You can use penalty-free withdrawals for qualified highereducation expenses for you, your spouse, and your children.
First-time home purchase. You can withdraw up to $10,000 (lifetime limit) forqualified home acquisition costs without penalty.
Birth or adoption. You can withdraw up to $5,000 for expenses related to thebirth or adoption of a child.
Emergency expenses. Starting January 1, 2024, you can withdraw up to $1,000annually for emergency personal expenses without penalty.
Disaster recovery. Withdrawals for qualified disaster recovery expenses areexempt from the penalty, up to an aggregate limit of $22,000.
Disability. If you are disabled and cannot engage in substantialgainful activity, you can withdraw funds without penalty.
Long-term care. Beginning December 29, 2025, you can take penalty-freewithdrawals for qualified long-term care expenses.
Terminal illness. Withdrawals due to terminal illness are exempt from thepenalty.
Post-death withdrawals. Amounts withdrawn after the IRA owner’s death are notsubject to the penalty.
Military reservists. Active-duty military reservists called to duty for atleast 180 days can withdraw funds without penalty.
Health insurance premiumsduring unemployment. If you receiveunemployment compensation for 12 consecutive weeks, you can withdraw funds topay for health insurance premiums without penalty.
Domestic abuse victims. Starting January 1, 2024, you can take penalty-freewithdrawals of up to $10,000 if you are a victim of domestic abuse.
IRS levies. Withdrawals to pay IRS levies on the IRA account are notsubject to the penalty.
It’s important to note that SIMPLEIRAs incur a 25 percent penalty for early withdrawals within the first twoyears of participation. Additionally, Roth IRAs have different rules, allowingpenalty-free access to contributions but potentially taxing and penalizingwithdrawals of earnings.
