For one reason or another, you may find yourself needing to tap into your IRA before retirement. While you can withdraw funds from an IRA at any time, doing so before age 59½ generally triggers two costs: ordinary income tax on the taxable portion of the withdrawal, plus a 10% early withdrawal penalty — unless you qualify for an exception.
These rules apply to Traditional IRAs, SEP-IRAs, and SIMPLE-IRAs (though note: SIMPLE IRAs face a higher 25% penalty if distributions occur within the first two years of participation). Different rules apply to Roth IRAs and employer-sponsored plans like 401(k)s, so it’s important to understand the distinctions.
The IRS recognizes several exceptions that allow you to access IRA funds without the additional 10% tax. Below are the key exceptions in effect for 2025, based on current IRS guidance and recent legislation.
You may withdraw funds penalty-free to the extent your unreimbursed medical expenses exceed 7.5% of your adjusted gross income (AGI). These expenses must be paid in the same year as the withdrawal.
If you’ve received unemployment compensation for at least 12 consecutive weeks, you may take penalty-free withdrawals to pay health insurance premiums for yourself, your spouse, and dependents. However, this exception ends once you’ve been re-employed for at least 60 days.
Withdrawals are exempt if you become totally and permanently disabled, meaning you cannot engage in your usual occupation (or a comparable one), and the condition is expected to be of long or indefinite duration or result in death.
Distributions made after the IRA owner’s death are not subject to the 10% penalty. However, this exception doesn’t apply if a surviving spouse rolls the funds into their own IRA and later withdraws them early.
You may take a series of substantially equal periodic payments over your life expectancy (or joint life expectancy with your beneficiary). These withdrawals must continue for at least five years or until age 59½ — whichever comes later.
You may withdraw up to $10,000 (lifetime limit) penalty-free to buy, build, or rebuild a first home for yourself, your spouse, child, grandchild, or ancestor — provided neither you nor your spouse owned a home within the past two years.
Penalty-free withdrawals are permitted to pay for qualified higher education expenses, including tuition, fees, books, and supplies for yourself, your spouse, or your (or your spouse’s) children or grandchildren.
Distributions made to satisfy an IRS levy on the IRA itself are exempt from the early withdrawal penalty. However, this does not apply if you withdraw funds voluntarily to pay a personal tax bill.
Qualified reservists called to active duty for at least 180 days (or an indefinite period) may make penalty-free withdrawals during their service period.
Recent legislation — the SECURE 2.0 Act of 2022 — expanded the list of penalty-free exceptions. These newer provisions reflect Congress’s efforts to make retirement funds more flexible for emergency and family needs.
You may withdraw up to $1,000 per year to cover unforeseeable or immediate financial needs relating to personal or family emergencies. You can repay the funds within three years; if you don’t, another emergency withdrawal cannot be made during that period.
Individuals who experience domestic abuse may withdraw up to the lesser of $10,000 or 50% of their IRA balance penalty-free. The amount can be repaid within three years if desired.
Each parent may withdraw up to $5,000 per child to cover expenses related to the birth or adoption of a child, without incurring the penalty. The withdrawn amount may be repaid at any time.
If you live in a federally declared disaster area, you may take penalty-free withdrawals up to $22,000 for qualified disaster-related losses. Repayment options are available for up to three years.
Withdrawals from Roth IRAs follow separate rules. Your contributions (basis) can be withdrawn at any time, tax- and penalty-free. However, earnings withdrawn before the account is at least five years old and before age 59½ may be subject to both income tax and the 10% penalty unless an exception applies.
When you take an early IRA withdrawal, you must generally file Form 5329, Additional Taxes on Qualified Plans (Including IRAs), with your tax return to claim an exception to the penalty. Proper documentation is essential to substantiate eligibility.
Before making an early withdrawal, it’s wise to consult your Porte Brown tax advisor to confirm that you qualify for an exception and to fully understand the tax implications. As always, careful planning can help you minimize penalties and preserve your retirement savings for the years ahead.
Even if you qualify for an exception to the 10% early withdrawal penalty, remember that you still have to pay regular income tax on the amount. And you'll lose out on the benefit of future tax-deferred compounding growth on the withdrawn funds.