Exceptions to IRA Early Withdrawal Penalty
The Internal Revenue Service (IRS) imposes a 10% early withdrawal penalty on distributions from traditional and Roth IRAs before the account holder reaches age 59½. However, there are several exceptions to this penalty.
Age
Once you reach age 59½, you can make withdrawals from your IRA without incurring the early withdrawal penalty.
Disability
If you become totally and permanently disabled, you can withdraw from your IRA without penalty.
Death
In the event of the IRA owner’s death, beneficiaries can withdraw from the IRA without penalty.
Qualified Birth or Adoption Expenses
You can withdraw up to $5,000 per child for qualified birth or adoption expenses without penalty.
Corrective Distributions
Corrective distributions of excess contributions, excess aggregate contributions, and excess deferrals made timely are exempt from the penalty.
Disaster Recovery Distribution
Individuals who sustain an economic loss due to a federally declared disaster can withdraw up to $22,000 without penalty.
Domestic Abuse Victim Distribution
Victims of domestic abuse can withdraw up to the lesser of $10,000 or 50% of their account without penalty (applies to distributions made after 12/31/2023).
Education Expenses
Withdrawals for qualified higher education expenses are exempt from the penalty.
First-Time Homebuyers
Individuals can withdraw up to $10,000 for qualified first-time homebuyer expenses without penalty.
Medical Expenses
Withdrawals for unreimbursed medical expenses that exceed 7.5% of adjusted gross income (AGI) are exempt from the penalty.
Military Reservists
Qualified military reservists called to active duty can make penalty-free withdrawals from their IRAs.
Rollovers
In-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days are exempt from the penalty.
Citations
FAQs
What is the early withdrawal penalty for IRAs?
The early withdrawal penalty for IRAs is 10% of the amount withdrawn. This penalty applies to withdrawals made before the account holder reaches age 59½.
What are the exceptions to the IRA early withdrawal penalty?
The exceptions to the IRA early withdrawal penalty include:
-
- Age 59½ or older
-
- Disability
-
- Death of the IRA owner
-
- Qualified birth or adoption expenses
-
- Corrective distributions
-
- Disaster recovery distributions
-
- Domestic abuse victim distributions
-
- Education expenses
-
- First-time homebuyer expenses
-
- Medical expenses
-
- Military reservists called to active duty
-
- Rollovers
How do I qualify for the IRA early withdrawal penalty exception for disability?
To qualify for the IRA early withdrawal penalty exception for disability, you must be totally and permanently disabled. This means that you cannot engage in any substantial gainful activity.
How much can I withdraw from my IRA penalty-free for qualified birth or adoption expenses?
You can withdraw up to $5,000 per child for qualified birth or adoption expenses without penalty.
What are qualified higher education expenses?
Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at a qualified educational institution.
How much can I withdraw from my IRA penalty-free for first-time homebuyer expenses?
You can withdraw up to $10,000 for qualified first-time homebuyer expenses without penalty.
What are unreimbursed medical expenses?
Unreimbursed medical expenses are medical expenses that are not covered by insurance or other sources. To qualify for the IRA early withdrawal penalty exception for medical expenses, your unreimbursed medical expenses must exceed 7.5% of your adjusted gross income (AGI).