12 Ways To Withdraw Money From Your IRA Early Without Penalty

If you know much at all about your IRA, you’re probably aware that, generally, you must wait until after age 59½ before withdrawing funds from the account, or you’ll be subject to a 10% penalty in addition to the tax on the distribution.  You may also be aware that there are several exceptions to this penalty – one of which is the use of a Series of Substantially Equal Periodic Payments.  What we’re going to review in this article are the “other” exceptions; those specific situations that are uniquely identified by the IRS as not subject to the 10% penalty.

Exceptions to the 10% Early Withdrawal Penalty

Below are the specific exceptions that the IRS has identified that allow you to withdraw IRA money without the 10% penalty:

  1. Qualified Higher Education Expenses – you can withdraw your IRA funds to help pay for college expenses.  Qualified Higher Education Expenses (QHEE) (oh my word, is there an acronym for EVERYTHING??) include tuition and related expenses at an eligible educational institution.  Related expenses can include student-activity fees (only if paid to the institution) and books, materials and equipment, if purchased from the institution.  Expenses that are not considered QHEE include insurance, medical expenses (including student health insurance fees), transportation, and other personal living expenses.  Room and board is included as a QHEE if the student is at least a half-time student.  Distributions must be taken in the same year that the expenses are paid out, and cannot be the same expenses that have been paid by a Coverdell plan, a 529 plan, a scholarship, grant or any other tax-free assistance.
  2. Death – If you die, your beneficiaries are able to take distributions from your IRA without penalty.  In fact, the beneficiary of an IRA will be required to take distributions from the account – read more about this in the article Stretching Your IRA – A Legacy in the Making.
  3. Disability – If you are “totally and permanently disabled” by IRS definition, you can take distributions from your IRA without penalty.  You are considered disabled if you can furnish proof that you cannot do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.
  4. High Unreimbursed Medical Expenses – for yourself, your spouse, or your qualified dependent.  If you face these expenses, you are allowed to withdraw a limited amount (the actual expenses minus 7.5% of your AGI) without penalty.  Only those expenses that you could otherwise claim as deductions on your Schedule A (Form 1040) above the 7.5% AGI floor are eligible for this exception.
  5. Medical Insurance Premiums – if you’ve lost your job and receive unemployment compensation, you are eligible to withdraw an amount to pay for your medical insurance premiums, if all of the following conditions also apply:
    • You received unemployment compensation paid under any federal or state law for 12 consecutive weeks or more because you lost your job
    • You receive distributions from your IRA either during the year you received the unemployment compensation or the following year
    • You receive distributions from your IRA no later than 60 days after you have been re-employed
  6. First-Time Home Purchase – up to $10,000 ($20,000 for a couple) of the costs of buying, building, or re-building a “first home”.  First home is determined if you had no present interest in a main home for two years prior to the purchase.  If you are married, your spouse must also meet the non-ownership qualification as well.  The distribution must be paid toward these costs within 120 days of the date you received the distribution, and the home can be for yourself, your spouse, your child (or your spouse’s child), your grandchild (or your spouse’s grandchild), or any ancestor of yourself or your spouse (meaning parent, grandparent, etc.).
  7. Qualified Reservist – If you were called to duty after September 11, 2001 and serve for at least 6 months (specifically more than 179 days), you are allowed to make a withdrawal from your IRA during your active duty period without penalty. The withdrawal must occur on or after the date that you are called to active duty.  This exception also applies to your elective deferrals in a 401(k) plan, a 403(b) plan, or other similar qualified retirement plan, in addition to an IRA.
  8. Divorce – although not a particular IRS regulation, multiple Private Letter Rulings have allowed divorced parties to “split” an IRA into two separate IRAs, both with the original restrictions on distribution.  It’s important to note that a QDRO (Qualified Domestic Relations Order) does not apply to your IRA.  In order for an IRA to be split as a part of a divorce, this must be included as a part of the divorce decree, specifically identifying the account, amount, etc., that is to be split.
  9. Roth IRA Conversion – when you convert your funds from a Traditional IRA to a Roth IRA, although you pay tax on the distribution, there is no 10% penalty applied.
  10. Rollover – using the 60-day period, you are eligible to have access to your funds without penalty as long as the rollover is completed within 60 days.  The same holds true for a trustee-to-trustee transfer, although this is generally not considered a distribution.
  11. Payment to Advisor/Investment Manager – you are allowed to authorize your custodian to pay your Advisor or Investment Manager from your IRA funds any fees for managing your IRA. This includes transaction fees and annual custodian fees. If you have an arrangement with an Advisor or Investment manager and you pay for this arrangement via a fee to the Advisor, you can avoid the tax on this amount by paying the Advisor with funds from your IRA – in fact the Advisor in most cases can deduct the fee directly from your account.
  12. Periodic Temporary “Relief” provisions – from time to time, as the situation merits, Congress will enact special legislation allowing individuals impacted (primarily) by natural disasters to access IRA funds without paying the 10% penalty. One notable example of such a provision recently was for victims of Hurricane Katrina.

About the author

Jim Blankenship, CFP®, EA

Jim Blankenship is the founder and principal of Blankenship Financial Planning, Ltd., a financial planning firm providing hourly, as-needed financial planning and advice. A financial services professional for over 25 years, Jim is a CFP professional and has earned the Enrolled Agent designation, a designation that qualifies him as enrolled to practice before the IRS. Jim is also a NAPFA-registered financial advisor, which designates him as a Fee-Only Financial Advisor.

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  • Kenrick –

    Since you’ve inherited the IRA, you are in a position to roll it into an inherited IRA at the custodian of your choice and begin taking required minimum distributions from the account. You will base these distributions on your own life span, although you can take out more than the minimum if you like. It sounds like you have a place to use the funds in this home purchase, which you should be eligible to do without penalty. You will, however, owe ordinary income tax on the amounts that you take from the IRA that represent pre-tax (or deducted) contributions that your father made.

    For more details on how to handle the inherited IRA, see this article on inherited IRAs.

    Hope this helps –


  • Hello Jim , My situation is that my Dad recently passed away and named me beneficary of his IRA .The Bank that Manages the IRA is not very cooperative at all …the only thing they are interested in is for me to roll it over for my retirement which is close to 55 yrs away .My Dad was 67 and he didn’t start saving until 16 years ago. It’s a ysubstantial amount and can understand they would hate to lose the opportunity to make 9 times the amount if I take it to another establishment. Well my question is I’m interested in buying my first ever home that’s on foreclosure for dirt cheap in a half million dollar neighborhood. Any advice or major withdrawal road blocks?

  • Glen –

    That’s an excellent question that I don’t know the answer to. I am compelled to think that it should be okay to pay him from your IRA – this is not an investment of funds with a related party, this is payment for services.

    The fee paid to him should be strictly related to investment advice/service for the benefit of the IRA account though. It is forbidden to pay (without taxation) for investment advice related to other accounts. Normally this is done by splitting the fee relative to the amount of assets in the two accounts, although it could be argued that, without taxation issues in the IRA, this account requires less advisory oversight.

    TD Ameritrade is familiar with the advisory payment, although I have not worked with a retail account on this in the past. They should be open to your request though.

    Hope this helps –


  • Jim,

    Thanks for the article.

    On the issue of paying advisory fees from my IRA, I have a question. In my case my son is my advisor. He has done fabulously well investing my accounts for over 12 years; typically pretty evenly diversified into about 100 stocks, he has beaten the S&P 500 in 10 of those 12 years and more than tripled the account value(so I am both happy and proud). Despite this it is just a side line job for him and he only works for me an a couple of others. As such he is not required to register as an investment advisor because he is below the threshold in number of clients(his state regs require registration only if he has more than 5 paying clients) and he is nowhere near the level of assets that would require registration on the federal level.

    My question is can I pay him from the IRA even though we are related and he is not an RIA? Also, can I pay him from the IRA for the management fees for both the IRA and the assets in my much smaller taxable account that he also manages along with it? For years I’ve been paying him for both from the taxable account but I’m about to use most of the money in the taxable account to buy a property so there won’t be much left in there compared to the IRA so I’d rather pay from the IRA if I can do so without penalty or tax consequence.

    I have not yet asked the broker where the accounts are held(TD Ameritrade); I typically find their customer service folks to not be well informed and they tend to just say “no” to everything that they don’t know the answer to. Thanks.

  • Mike –

    If you’re under age 59.5 and aren’t setting up a Series of Substantially Equal Periodic Payments, and you do not meet one of the other exceptions listed above, distributions from your IRA will be subject to 10% penalty over and above the ordinary income tax on the distribution.


  • Iam currently self employed the monthly monies that I make form my company is not enough to pay my monthly bill. what is the current ruling on me take money from my own IRA account. ??

  • Marietta –

    I don’t know that answer. An educated guess would be that he could, but it might depend on the laws of the state.


  • You’re welcome, Kenneth.

    One clarification – I should have said (in the above comment) that the expenses related to an investment account are considered deductible from income. It’s a small distinction, but that would be the correct way to state Section 212’s code.


  • Hi, Kenneth –

    It’s not in Pub 590. It’s a part of IRC Section 212, providing for expenses related to managing an account are not includable as income – translated to an IRA, the investment expenses are not considered a taxable distribution.

    Hope this helps –


  • Hello –
    Where in Publication 590 do I verify that “Payment to Advisor/Investment manager” will not trigger an early withdrawal penalty?


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