An early IRA withdrawal, typically before age 59 & 1/2, is subject to a 10% penalty tax on the taxable portion. There are several exceptions to this penalty. Reach out to your tax advisor with questions.
- Medical expenses: medical expenses exceeding 7.5% of AGI are exempt
- Higher Ed expenses: qualified educational expenses can be considered penalty-free withdrawals
- First-time home purchase: withdrawals up to a $10K lifetime limit are available for home acquisition costs.
- Substantially equal periodic payments: penalty-free withdrawals require adhering to specific conditions.
- Disability: withdrawals due to disability are penalty-free under specific conditions
- Long-term care: beginning in 2025, withdrawals for qualified long-term care are exempt
- Birth or adoption: withdrawals are possibly penalty-free up to $5K for birth or adoption expenses
- Emergency expenses: a new provision permits up to $1K annually for emergency expenses
- Disaster recovery: withdrawals are exempt up to $22K for qualified disaster recovery
- Military: active-duty reservists can withdraw penalty-free
- Terminal illness: withdrawals are penalty-free for the terminally ill
- After-death withdrawals: withdrawals are penalty-free after the death of the account owner
- Health insurance premiums during unemployment: withdrawals can be penalty-free for health insurance payments made during unemployment.
- IRS levies: if a withdrawal is to pay an IRS levy against the IRA account, it is exempt from penalties
- Victim of domestic abuse: withdrawals up to $10K are penalty-free for domestic abuse victims