What Are the IRA Early Withdrawal Penalty Exceptions?

Taking money out of an IRA before age 59½ usually costs you an extra 10% tax on top of the regular income tax on the distribution.¹ But Congress has written more than a dozen exceptions into the law for major life events — medical crises, job loss, a first home, a new child, disability, disaster, domestic abuse, military call-up, and several others — and the list grew again under SECURE 2.0. If your situation fits one of the IRA early withdrawal penalty exceptions below, you still owe income tax on a traditional IRA distribution, but the extra 10% goes away.

Medical Bills, Disability, and Terminal Illness

Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income for the year qualify. You can withdraw up to that excess amount penalty-free, and you do not have to itemize to use the exception.² Add up every qualifying medical bill you paid out of pocket, subtract 7.5% of your AGI, and the remainder is the penalty-free ceiling.

Health insurance premiums get their own carve-out if you lost your job. Collect unemployment for at least 12 consecutive weeks and you can pull IRA money to pay premiums for yourself and your family without the penalty.³ The distribution has to happen in the tax year you received unemployment or the following year, and the exception ends once you have been re-employed for 60 days. Only the amount actually spent on premiums qualifies.

Total and permanent disability removes the penalty with no dollar cap. A physician must certify that you cannot perform any substantial gainful activity because of a physical or mental condition, and that the condition is expected to result in death or last indefinitely.⁴

Terminal illness is a newer exception. If a physician certifies that you are expected to die within 84 months, distributions taken on or after the date of certification are penalty-free with no cap, and you can repay the money later if your health improves.¹ The certification has to be in hand at or before the distribution.

Higher Education Expenses

Qualified higher education costs at any school that participates in federal student aid programs are penalty-free.⁵ Tuition, fees, books, supplies, and required equipment such as a computer all count. The expenses do not have to be yours: the exception covers costs for your spouse, your children, or your grandchildren. Room and board qualify only if the student is enrolled at least half-time.

Any tax-free educational assistance reduces the penalty-free amount. If a child received a $5,000 grant toward $20,000 in tuition, only $15,000 of your IRA withdrawal would qualify.

First Home Purchase

You can take up to $10,000 out of an IRA over your lifetime to buy, build, or rebuild a first home without the penalty.³ The cap is per person, not per purchase. A married couple can each pull $10,000 from their own IRAs, for $20,000 combined.

The money must go toward qualified acquisition costs — the purchase price, settlement fees, financing charges, and other typical closing costs — and must be used within 120 days of the distribution. The home can be for you, your spouse, a child, a grandchild, or a parent.

“First-time” is broader than it reads. You qualify as long as neither you nor your spouse had an ownership interest in a principal residence during the two-year period ending on the date you acquire the new home. Someone who owned a house years ago but has been renting for the last two years fits the definition.

Birth or Adoption, and a Word on Divorce

Each parent can withdraw up to $5,000 per child following a birth or a finalized adoption, penalty-free.² The distribution has to happen within one year of the birth or the finalized adoption date.³ Two parents with IRAs can take up to $10,000 combined per child, and the amount can be repaid to the IRA later as a rollover.

Divorce is not on the exception list because a properly handled transfer is not treated as a distribution in the first place. IRA assets moved directly to a spouse or former spouse under a divorce decree or separation agreement flow between the accounts with no tax and no penalty.⁶ The transfer must go trustee-to-trustee or otherwise be incident to the divorce. Withdraw the money yourself first and then hand it over as part of a settlement, and the distribution is taxable to you and hit with the 10% penalty unless another exception applies.

Small Emergencies, Domestic Abuse, and Federally Declared Disasters

SECURE 2.0 added several exceptions starting in 2024 for situations the older rules did not cover.

Emergency Personal Expenses

One penalty-free withdrawal is allowed per calendar year for unforeseeable or immediate personal or family emergency expenses.² The cap is the lesser of $1,000 or your account balance minus $1,000.⁷ You have three years to repay. Until you repay (or make equivalent contributions), you generally cannot take another emergency distribution.

Domestic Abuse

Victims of domestic abuse by a spouse or domestic partner can withdraw the lesser of $10,000 (indexed for inflation, $10,300 in 2025) or 50% of the account balance, during the one-year period beginning on any date the abuse occurs.⁷ Abuse covers physical, psychological, sexual, emotional, or economic abuse.⁸ You self-certify — no police report or court order is required — and you can repay the amount over three years, reclaiming the income tax you paid.

Federally Declared Disasters

If you live in a federally declared disaster area and suffered an economic loss, you can withdraw up to $22,000 penalty-free.² This is now a permanent provision instead of the one-off relief bills Congress used to pass after each disaster. You can spread the income across three tax years and repay the amount within three years to recover the tax.

Military Reservists on Active Duty

A reservist called to active duty for more than 179 days, or for an indefinite period, can take penalty-free distributions during the active duty period with no dollar cap.³ You have two years after active duty ends to repay some or all of the amount back into an IRA, and those repayments do not count against your annual contribution limit.

IRS Levies, Death, and Excess Contributions

When the IRS itself takes money from your IRA through a formal levy for unpaid taxes, the forced distribution is penalty-free.² Pulling the money out on your own to pay a tax bill does not qualify — only actual levies do.

Distributions to a beneficiary after the account owner’s death are always free of the 10%, regardless of the beneficiary’s age.⁷ Regular income tax still applies to a traditional IRA distribution; the additional tax never does.

If you contributed too much to your IRA, pulling the excess plus any earnings on it back out before your tax filing deadline (including extensions) avoids the penalty.⁹ If you already filed, you have up to six months after the original due date to correct it and file an amended return.

Substantially Equal Periodic Payments

If none of the life-event exceptions fit but you still need regular access to the account before 59½, substantially equal periodic payments — a SEPP plan — let you take annual distributions calculated from your life expectancy without the penalty.¹⁰ The IRS permits three calculation methods: a required minimum distribution method that fluctuates each year with your balance, a fixed amortization method that produces the same annual payment, and a fixed annuitization method based on an annuity factor for your age.

Once payments start they must continue for at least five years or until you reach 59½, whichever comes later. This is where people get hurt. Change the payment amount before the period ends and you owe the 10% penalty retroactively on every distribution you have taken under the plan, plus interest back to the year of each distribution.¹⁰ A 45-year-old starting a SEPP would need to keep it going for nearly 15 years.

Roth IRAs Work Differently

Roth IRA distributions come out in a specific order: your regular contributions first, then conversion amounts, then earnings.⁵ Because contributions come out first, you can withdraw up to the total you have contributed at any age, for any reason, with no tax and no penalty. Many Roth owners never touch their earnings and never face the 10% question. The penalty only comes into play once you reach the conversion or earnings layers, and at that point the same exceptions covered above can still apply.

Claiming the Exception on Your Tax Return

Your IRA custodian issues a Form 1099-R for the distribution. Box 7 often shows code 1, “early distribution, no known exception.”⁹ That code does not mean you owe the penalty. It means the custodian does not know your personal circumstances, so you claim the exception yourself on IRS Form 5329, attached to your Form 1040.

On Part I you enter the total early distribution, the amount that qualifies for an exception, and the exception number. Some of the codes you are most likely to use:

03 — Total and permanent disability
05 — Unreimbursed medical expenses exceeding 7.5% of AGI
07 — Health insurance premiums during unemployment
08 — Qualified higher education expenses
09 — First-time home purchase (up to $10,000)
11 — Qualified reservist distributions
12 — Incorrectly coded distribution (you were actually 59½ or older)

The full list runs through code 23 and includes the newer SECURE 2.0 exceptions; use code 99 if more than one exception applies to the same distribution.⁴ The penalty amount, or zero if the full distribution is excepted, flows to Schedule 2.

Even if you would not otherwise file a return, you still need to file Form 5329 on its own if you owe the additional tax or need to report an exception.⁴ Hold onto your supporting records — medical bills, tuition statements, closing disclosures, physician certifications, military orders — for at least three years after filing. If the IRS questions the exception, those records are your proof.

1
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
2
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
3
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Instructions for Form 5329
5
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
6
Internal Revenue Service. Filing Taxes After Divorce or Separation
7
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
8
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax Under Code Section 72(t)
9
Internal Revenue Service. Instructions for Form 5329
10
Internal Revenue Service. Substantially Equal Periodic Payments