Exceptions to the 10% penalty when taking IRA distributions before 59 1/2

With a tax-deferred Individual Retirement Account, or “IRA,” you typically can’t take money out of the account prior to age 59 ½ without paying a 10% penalty. Since IRAs are meant to help you save for retirement, taking money out of them before 59 ½ often isn’t ideal. But sometimes you don’t have any alternatives.

Thankfully, the IRS grants nine exceptions the early withdrawal penalty. You’ll still have to pay tax on your distributions, but you won’t have to pay the 10% penalty in the below cases:

1. Paying for unreimbursed medical expenses that are more than 7.5% of your Adjusted Gross Income, or “AGI” 
2. Paying for medical insurance premiums during your unemployment
3. Distributions while you are totally and permanently disabled
4. Distributions from an inherited IRA
5. Distributions under a formal plan of Substantially Equal Period Payments, or “SEPP”
6. Paying for qualified higher education expenses for you, your spouse, your children or your grandchildren
7. Using the money to buy, build or rebuild the first home for you, your spouse, your children, your grandchildren or your parents. There is a $10,000 lifetime limit on such amounts
8. A levy from the IRS
9. A “qualified reservist distribution,” which only applies to those in the military reserves who are called to duty for more than 179 days

For more information about each of these, check out my recent YouTube video, Exceptions to the 10% IRA Early Withdrawal Penalty.