You’ve been diligently contributing to your IRA for a secure retirement. But what if an unexpected financial crisis hits before you reach retirement age and you need to supplement your income?
Tapping into your IRA might seem tempting, but there are strict IRS rules to consider. Generally, withdrawals before age 59 1/2 incur a 10% penalty on top of income taxes.
However, there are exceptions. In this article, we explore 11 situations where you can access your IRA funds penalty-free.
Permanent disability
If you become permanently disabled before age 59 1/2, you can start withdrawing funds from your traditional IRA without paying a 10% tax. You’ll likely need to provide medical records that document and verify your permanent disability.
As with all withdrawals, you’ll report the withdrawal amount as income on your taxes.
Out-of-pocket, unreimbursed medical expenses
If your insurance plan doesn’t cover certain costly medical expenses (or if you don’t have health insurance, to begin with), you can withdraw IRA money to cover these bills. However, there are a few caveats.
First, you have to pay the medical bills during the same calendar year in which you withdraw the funds. Second, you’re only exempt from the 10% tax on withdrawals that cover medical expenses totaling more than 7.5% of your adjusted gross income (AGI).
Health insurance premiums during a period of unemployment
Health insurance premiums are expensive, especially if you’re unemployed and your employer doesn’t pay a portion of the premium.
If you lose your job and need to pay an out-of-pocket premium for your household’s health insurance, you can make a fee-free IRA withdrawal to cover the cost.
Earn $200 cash rewards bonus with this incredible card
There's a credit card that's making waves with its amazing bonus and benefits. The Wells Fargo Active Cash® Card(Rates and fees) has no annual fee and you can earn $200 after spending $500 in purchases in the first 3 months.
The Active Cash Card puts cash back into your wallet. Cardholders can earn unlimited 2% cash rewards on purchases — easy! That's one of the best cash rewards options available.
This card also offers an intro APR of 0% for 12 months from account opening on purchases and qualifying balance transfers (then 19.74%, 24.74%, or 29.74% Variable). Which is great for someone who wants a break from high interest rates, while still earning rewards.
The best part? There's no annual fee.
Tuition, books, room and board, and other higher education costs
Struggling to pay for college, either for yourself, your spouse, or one of your dependents? You might be able to make a withdrawal that pays for certain expenses without incurring the 10% early withdrawal tax.
However, only a certain portion of a withdrawal made for college expenses is tax-free. Consult IRS Publication 970 or meet with a tax professional to understand how much of your education-related early withdrawal will be taxed.
Adding a child to your family through birth or adoption
For a full year after a child’s birth or adoption, you can withdraw up to $5,000 from your IRA without paying the 10% tax. Married? Your partner can withdraw $5,000, tax-free, from their own IRA as well.
Trending Stories
Purchasing your first home
If you’re buying or building your first home, you can withdraw up to $10,000 from your IRA to contribute toward costs. If you’re married, your spouse can also withdraw $10,000 from their own IRA without paying an early withdrawal tax.
Note that from the IRS’s perspective, anyone who hasn’t owned a home for the previous two years is a first-time homebuyer. So, even if you aren’t technically a first-time buyer, you might still qualify for a tax-exempt withdrawal.
Military reservists or National Guard members called to active duty
Individuals in the National Guard and other military reservists may be called to active duty in the military at any time. If they are, qualified reservists can withdraw money from their IRA without paying a 10% withdrawal tax.
However, you must be on active duty for at least 179 days to qualify. Plus, you can’t withdraw funds before you deploy or after you return and expect to avoid the 10% tax. Instead, you must take money out of your account while actively serving.
Terminal illness
If you receive a diagnosis of a terminal illness, you’re allowed to start making early withdrawals from certain retirement funds, including 401(k)s, without paying a 10% withdrawal tax.
In this case, a “terminal illness” refers to a disease that a qualified physician believes will end in death within roughly seven years (84 months).
IRS levy for unpaid taxes
In some cases, the IRS can levy money directly from your IRA to pay the federal taxes you owe. In this case, you don’t need to (and shouldn’t) withdraw those tax repayment funds yourself.
The IRS imposes the levy itself and withdraws funds directly, but if you withdraw money with the intent to pay the IRS, you’ll pay the 10% early-withdrawal tax.
If you’re over 50, take advantage of massive discounts and financial resources
Over 50? Join AARP today — because if you’re not a member you could be missing out on huge perks. When you start your membership today, you can get discounts on things like travel, meal deliveries, eyeglasses, prescriptions that aren’t covered by insurance and more.
How to become a member today:
- Go here, select your free gift, and click “Join Today”
- Create your account (important!) by answering a few simple questions
- Start enjoying your discounts and perks!
You’ll also get insider info on social security, job listings, caregiving, and retirement planning. And you’ll get access to AARP’s Fraud Watch Network to help you protect your money, as well as tools to help you plan for retirement.
Important: Start your membership by creating an account here and filling in all of the information (Do not skip this step!) Doing so will allow you to take up 25% off your AARP membership, making it just $12 per year with auto-renewal.
Domestic abuse
If you’re the victim of domestic abuse, either by a married spouse or a domestic partner, a new law lets you withdraw up to $10,000 tax-free from your IRA. You need to make the withdrawal within a year of the domestic abuse incident.
Federally declared disasters
The Federal Emergency Management Agency (FEMA) might declare a disaster in your area in the case of a devastating wildfire, earthquake, hurricane, or other natural disaster.
If you experience financial hardship as a result of one of these events, you can likely withdraw as much as $22,000 from your IRA without paying the 10% tax.
Bottom line
Tapping into your retirement savings should be a last resort. If you're facing financial hardship, explore all other options first, such as cutting back on expenses or seeking temporary employment.
Remember, withdrawing funds from your IRA means sacrificing potential future growth and could impact your ability to have a stress-free retirement.
Lucrative, Flat-Rate Cash Rewards
FinanceBuzz writers and editors score cards based on a number of objective features as well as our expert editorial assessment. Our partners do not influence how we rate products.
Wells Fargo Active Cash® Card
Current Offer
$200 cash rewards bonus after spending $500 in purchases in the first 3 months
Annual Fee
$0
Rewards Rate
Earn unlimited 2% cash rewards on purchases
Benefits
- Low spend threshold for its welcome offer — $200 cash rewards bonus after spending $500 in purchases in the first 3 months
- Cell phone protection benefit (subject to a $25 deductible)
- Can redeem rewards at an ATM for literal cash
Drawbacks
- Foreign transaction fee of 3%
- No bonus categories
- Select “Apply Now” to take advantage of this specific offer and learn more about product features, terms and conditions.
- Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months.
- Earn unlimited 2% cash rewards on purchases.
- 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers. 19.74%, 24.74%, or 29.74% Variable APR thereafter; balance transfers made within 120 days qualify for the intro rate and fee of 3% then a BT fee of up to 5%, min: $5.
- $0 annual fee.
- No categories to track or remember and cash rewards don’t expire as long as your account remains open.
- Find tickets to top sports and entertainment events, book travel, make dinner reservations and more with your complimentary 24/7 Visa Signature® Concierge.
- Up to $600 of cell phone protection against damage or theft. Subject to a $25 deductible.
Subscribe Today
Want extra-cash moves to come right to you?
Stop browsing endlessly. Get proven ways to earn pocket money, help cover rent, and crush your debt — sent to your inbox daily.