The Reference Section

A collection of wealth improvement articles


IRA: Can I make penalty-free IRA withdrawals?

Question: Can I make penalty-free IRA withdrawals?

Answer: The tax law generally makes you pay a 10% penalty if you take money out of an IRA before you reach age 59½. However, there are several ways to tap your IRA earlier without incurring the 10% penalty.


Equal withdrawals. One way is to elect to take substantially equal withdrawals based on your life expectancy or the joint life expectancies of you and your designated beneficiary.


Home and education. You may also take money from your IRA to help cover certain expenses. For example, if you, your child, or grandchild is purchasing a home and the purchaser hasn’t owned a home within the last two years, you can withdraw, penalty-free, up to $10,000 to use towards this transaction. Likewise, if you, your spouse, child, or grandchild attends college or graduate school, you can take penalty-free distributions to cover eligible higher education costs.


Medical expenses. The IRS also allows penalty-free access to IRAs when taxpayers face certain difficulties. For example, if your medical expenses exceed 10% of your adjusted gross income, you may make a penalty-free withdrawal of up to the amount by which these expenses exceed the 10% floor. Similarly, if you have been unemployed for at least 12 consecutive weeks, you can take a penalty-free distribution to cover medical insurance premiums. Also, you are exempt from the early withdrawal penalty if you become disabled.


Military and public service personnel. Special rules apply to those on active military duty and to certain public safety employees.

Remember that you will most likely owe regular income tax on the money withdrawn even if the withdrawal is penalty-free.