Buying a home: The IRS allows qualified homebuyers who have not owned a home in the previous two years to withdraw up to $10,000 from their IRAs early and use money to purchase a home.
Birth or adoption: The IRS permits an early withdrawal of up to $5,000 from an IRA to pay for qualified birth or adoption expenses. This exemption applies per parent, allowing a couple to withdraw a combined total of $10,000 if both are eligible IRA holders.
Death: Beneficiaries are allowed to make withdrawals from the inherited IRA without facing early withdrawal penalties.
Disability: The IRS also provides an exemption from the early withdrawal penalty for IRA holders who are deemed to have a total and permanent disability.
Domestic abuse: Victims of domestic abuse can withdraw up to $10,000 or 50% of their account balance (whichever is lesser) from their IRA without facing the early withdrawal penalty. This exception is applicable for distributions made after Dec. 31, 2023.
Education expenses: Early IRA withdrawals are allowed if they’re used to pay for qualified education expenses, which include tuition, fees, books, supplies and equipment required for enrollment or attendance at an eligible educational institution.
Emergency personal expense: The IRS permits a withdrawal of up to $1,000 or the vested account balance over $1,000 (whichever is lesser) to cover emergency personal expenses. This includes immediate and heavy financial needs such as those arising from natural disasters or other unforeseen life events.
Substantially equal periodic payments: For those needing regular access to their IRA funds before age 59 ½, the IRS offers the option of substantially equal periodic payments (SEPPs). This involves taking early withdrawals using an IRS-approved calculation for 5 years or until the account holder reaches age 59 ½, whichever is longer.
Medical expenses: The IRS allows for penalty-free withdrawals from an IRA to cover unreimbursed medical expenses that exceed 7.5% of an individual’s adjusted gross income (AGI).
Unemployed health insurance: Penalty-free withdrawals are also allowed to cover the cost of health insurance premiums for individuals who have been unemployed for at least 12 weeks and have received unemployment compensation.
Military service: Qualified reservists who are called to active duty can make penalty-free early withdrawals.