When Can an IRA Owner Make Penalty-Free Withdrawals?

Penalty-free IRA withdrawals before age 59½ are possible in more than a dozen specific situations spelled out in the tax code, including disability, large medical bills, a first-home purchase, the birth or adoption of a child, federally declared disasters, and a structured payment plan called SEPP.¹ Each exception waives only the 10% early distribution penalty; with a traditional IRA, the money you pull out is still taxed as ordinary income. Roth IRAs follow their own set of rules, covered at the end.

What the 10% Penalty Actually Is

Any distribution from a traditional IRA taken before 59½ gets hit with a 10% additional tax on the taxable portion, on top of the regular income tax you already owe.² For someone in the 22% bracket, a $20,000 early withdrawal with no exception loses roughly $6,400 to federal taxes and the penalty combined.

Qualifying for an exception is only half the job. You report the penalty, or claim the exception, on IRS Form 5329. Skip the form and the IRS can assess the 10% automatically, even when you were entitled to the waiver.³ File the form in the same tax year as the distribution.

Health, Death, and Disability Exceptions

Death of the Account Owner

Distributions paid to a beneficiary or estate after the owner dies are penalty-free at any age.¹ Income tax on a traditional IRA still applies.

Total and Permanent Disability

If you become totally and permanently disabled, withdrawals are penalty-free regardless of age.⁴ The standard is strict: a physician must certify that your condition prevents any substantial work and is expected to last indefinitely or result in death. A months-long injury doesn’t clear the bar.

Terminal Illness

Added by the SECURE 2.0 Act, this exception covers you if a physician certifies an illness reasonably expected to cause death within 84 months.⁵ There’s no dollar cap, and you can repay the distribution within three years if your health improves.

Unreimbursed Medical Expenses

Only the portion of your unreimbursed medical costs above 7.5% of your adjusted gross income qualifies.⁶ At an AGI of $80,000 with $10,000 in bills, the threshold is $6,000, so $4,000 escapes the penalty. You don’t have to itemize to use this exception, and the expenses can be for you, your spouse, or your dependents.

Health Insurance Premiums After a Job Loss

If you’ve received unemployment compensation for at least 12 consecutive weeks, you can withdraw penalty-free to pay health insurance premiums for yourself, your spouse, and your dependents.¹ The distribution has to happen in the same year as the unemployment or the year after, and no more than 60 days after you start a new job. Only the amount actually spent on premiums counts.

First Home, Education, and Family Exceptions

First-Time Home Purchase

Up to $10,000 over your lifetime can come out penalty-free to buy, build, or rebuild a first home. Both spouses can tap separate IRAs for a combined $20,000.¹ “First-time” is generous: you qualify if you haven’t owned a principal residence in the two years before the purchase.

You have 120 days to use the money for qualifying acquisition costs. If the deal collapses, you can put the funds back into the IRA within that same 120-day window and avoid the penalty. Miss the window and the whole withdrawal reverts to a standard early distribution.

Qualified Higher Education Expenses

Tuition, fees, books, supplies, and required equipment at eligible post-secondary institutions qualify.¹ Room and board count only if the student is enrolled at least half-time, capped at the school’s published cost of attendance. Expenses can be for you, your spouse, your children, or your grandchildren. Withdraw more than the actual costs paid during the year and the excess loses the exception.

Birth or Adoption

Each parent can withdraw up to $5,000 per child, penalty-free, within one year of the birth or adoption finalization.⁷ An adopted child must be under 18 or unable to support themselves physically or mentally. The distribution can be repaid within three years.

Domestic Abuse

Since 2024, victims of domestic abuse by a spouse or domestic partner can withdraw the lesser of $10,000 (indexed) or 50% of the account balance, penalty-free.¹ Repay within three years and the income tax paid on the amount is refunded as well.

Emergency Personal Expenses

One withdrawal per calendar year of up to $1,000 (or your vested balance above $1,000, whichever is less) is penalty-free for unforeseeable personal or family emergencies.¹ If you don’t repay within three years, no further emergency withdrawal is allowed until you do.

Financial and Legal Situations

IRS Levy

When the IRS levies your IRA to collect unpaid taxes, the distribution avoids the 10% penalty.¹ The exception is specific to IRS levies. Creditor judgments, divorce orders, and other legal claims don’t qualify.

Federally Declared Disasters

If you live in a federally declared disaster area and suffer an economic loss, up to $22,000 can come out penalty-free.⁸ SECURE 2.0 made this permanent, so it’s no longer dependent on special legislation after each event. You have three years to repay, or you can spread the income tax over three years if you don’t.

Qualified Reservist Distributions

Military reservists called to active duty for at least 180 days can take penalty-free distributions during the active-duty period, with up to two years after their service ends to repay.¹

Substantially Equal Periodic Payments (SEPP)

If no life-event exception fits, SEPP is the structured workaround. You commit to a fixed series of annual payments calculated from your account balance and life expectancy; in exchange, the 10% penalty is waived on every payment.⁹ Early retirees use it to bridge the gap to 59½.

The IRS allows three calculation methods: required minimum distribution (recalculated each year, produces the lowest payment), fixed amortization, and fixed annuitization (both locked in at the first year’s amount). For the two fixed methods, the interest rate you use can’t exceed the greater of 5% or 120% of the federal mid-term rate for one of the two months before the first payment.⁹ You’re generally stuck with the method you pick, though a one-time, irrevocable switch from a fixed method to the RMD method is permitted.¹⁰

The real risk is the recapture rule. Payments must continue without modification for the longer of five full years or until you reach 59½. Break the schedule by changing the amount, taking an extra distribution from the same IRA, or stopping early, and the IRS retroactively applies the 10% penalty to every payment in the series plus interest.⁹ Someone who started at 50 and modified at 55 could owe five years of penalties in a single tax year. Only death and disability end a SEPP series cleanly.

Don’t Blow the 60-Day Rollover

Not an exception, but a trap that creates accidental early distributions. When you take money from an IRA and redeposit it into an IRA within 60 days, it counts as a rollover, with no tax and no penalty.¹¹ Miss the deadline and the entire amount becomes a taxable distribution with the 10% penalty attached.

The second rule catches people off guard. You can only do one indirect IRA-to-IRA rollover in any 12-month period across all your IRAs combined. A second one is treated as a taxable distribution, possibly with the penalty, and the redeposited money can be reclassified as an excess contribution subject to a 6% annual tax until corrected.¹¹ Direct trustee-to-trustee transfers don’t count toward the limit and are the safer route whenever you have the choice.

Roth IRAs Follow Different Rules

Because Roth IRAs are funded with after-tax dollars, your original contributions can come out at any time, at any age, for any reason, with no tax and no penalty.¹² That contribution layer is what makes a Roth a more flexible emergency reserve than a traditional IRA.

Earnings and conversion amounts are different. A fully qualified Roth distribution, free of both tax and penalty on earnings, requires that any Roth IRA you own has been open at least five tax years (counted from January 1 of the year of your first contribution), plus one of the following: age 59½, permanent disability, death (for a beneficiary), or a first-time home purchase up to $10,000.¹³ Conversion amounts have their own five-year clock, and earnings pulled out before the account qualifies can face the same 10% penalty as a traditional IRA, subject to the same list of exceptions above.

Inherited IRAs: No Penalty, but a Deadline

The 10% penalty never applies to distributions from an inherited IRA, regardless of the beneficiary’s age.¹ The concern shifts to how fast you have to empty the account.

For most non-spouse beneficiaries who inherited from someone who died after December 31, 2019, the full account must be distributed by the end of the tenth year following the year of death. A narrower group called “eligible designated beneficiaries” can still stretch distributions over their lifetime. That group includes a surviving spouse, a minor child of the deceased (until the age of majority), a disabled or chronically ill person, and anyone no more than 10 years younger than the original owner.¹⁴ Missing a required distribution triggers a 25% excise tax, reduced to 10% if corrected within two years.¹⁵

1
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
2
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
3
Internal Revenue Service. Instructions for Form 5329 (2025) – Section: Part I Additional Tax on Early Distributions
4
Internal Revenue Service. Retirement Topics – Disability
5
Cornell Law Institute. 26 USC 72(t)(2) – Definition: Terminally Ill Individual
6
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) – Section: Exceptions
7
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
8
Internal Revenue Service. Retirement Plans and IRAs Under the SECURE 2.0 Act of 2022
9
Internal Revenue Service. Substantially Equal Periodic Payments
10
Internal Revenue Service. Notice 2022-6 – Determination of Substantially Equal Periodic Payments
11
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
12
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) – Section: Ordering Rules for Distributions
13
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) – Section: What Are Qualified Distributions
14
Internal Revenue Service. Retirement Topics – Beneficiary – Section: Death of the Account Holder Occurred in 2020 or Later
15
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs