Exceptions to the IRA Penalty

If you withdraw funds from your IRA early, you are subject to a 10 percent IRA penalty in addition to income taxes that must be paid. Usually, you cannot withdraw until retirement age of 59 1/2. There are several exceptions to the rule, and if you meet any of these, you will only have to pay income taxes on your early distributions. There are separate exceptions for a 401K or 403B. Generally, an IRA is more lenient and allows many reasons for early withdraws penalty free.


If you left your job and had an IRA, you will not be subject to a penalty if you roll your money into a new IRA. You have sixty days to make the transfer penalty free. In addition, if you did receive a lump sum when you left your job, you can still deposit it into a new IRA penalty free as long as it is completed in sixty days from the date the lump sum was distributed.


If you became disabled before retirement age, you can withdraw all of your funds penalty free. This is not for a short term disability, it must be a permanent disability that will keep you from returning to work.

Buying a Home

If you buy a home, you may withdraw $10,000, penalty free, to apply to those costs. Anything over the $10,000 will be subject to a penalty. This rule only applies if you did not own a home in the two years previous to your new home purchase.


If you need money to pay for school, you might tap your IRA. You can apply your IRA funds to tuition and fees that are incurred by you, or your any of your dependents.


If you were unemployed and still needed to pay your own insurance premiums, you could use your IRA funds. If you were not paying your premiums yourself, for example if your old employer was still paying them, you could not use your IRA distributions penalty free for this purpose.

Medical Expenses

Medical expenses can be a huge burden even with insurance. The IRS allows you to deduct on your taxes anything that you paid which exceeds 7.5% of your income. Your IRA distributions are similar. Anything over that 7.5% mark can be paid with IRA funds penalty free. You do not need to itemize you deductions at tax time in order to qualify.

IRS Lien

If you owe money to the IRS and they levied your accounts, you will not pay a penalty. Just as the IRS can put a lien on your house, they can freeze your accounts in order to regain their losses. If they withdraw from your IRA in order to obtain the funds you owe them, you will not pay an early withdraw penalty.

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