Exceptions to the IRA 10% Early Withdrawal Penalty

Image shows a man opening a safety deposit box that says "IRA" and taking a stack of money out. Text reads: "Exceptions to the IRA early withdrawal penalty: medical expenses, health insurance, disability, you've inherited the IRA, 72(t) payments, qualified higher education expenses, first-time home purchase, qualified reservist distributions"

Image by Theresa Chiechi © The Balance 2019

Sometimes you need to take money out of a traditional IRA earlier than you thought you would. This type of withdrawal will be taxed, and may also be subject to an early withdrawal penalty tax. Of course, as is often the case with IRS rules, there are penalty taxes, and there are exceptions to those taxes.

Below are eight situations which may qualify you for an exception to the IRA penalty tax on withdrawals that are taken before you reach age 59 1/2. (There are no exceptions to paying ordinary income tax on the amount withdrawn.)

Medical Expenses

You can qualify for an exemption from the IRA penalty tax if you used your IRA early withdrawal to pay medical expenses that are more than 7.5% of your adjusted gross income.

Healthcare Insurance

If you are unemployed, used the IRA early withdrawal to pay for your medical insurance, and you meet the additional requirements below, you should be exempt:

  • You received unemployment compensation paid under federal or state law for 12 consecutive weeks because you lost your job.
  • You receive the IRA withdrawal during either the year you received the unemployment compensation or the following year.
  • If you have since been re-employed, you cannot have received your IRA withdrawal more than 60 days after your new employment started.


If you're disabled, plan on a doctor's verification to qualify for an exception to the penalty tax. According to the IRS website:

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 be of long, continued, and indefinite duration.

Inherited IRA

You Inherit an IRA in the following ways:

  • If you inherit an IRA from a non-spouse, even if the IRA owner was under age 59 1/2, you will not have to pay the penalty tax on amounts withdrawn. You will still have to include any IRA withdrawal in your adjusted gross income (AGI).
  • If you inherit an IRA from a spouse, and you choose to treat it as your own IRA, then any IRA early withdrawal you receive will be subject to the 10% penalty tax.
  • If you inherit an IRA from a spouse, but you choose to title the IRA as an "inherited IRA," then you would be eligible to receive IRA early withdrawals without paying the 10% penalty tax.

72(t) Payments

Created by Internal Revenue Code Section 72(t), the Substantially Equal Periodic Payment (SEPP) rule lets account holders withdraw money from their retirement accounts at any age, penalty-free. You must follow certain rules and use one of the three approved methods to calculate an ongoing withdrawal amount.

You must stick with your withdrawal schedule for a minimum of five years, or until you reach age 59 1/2 (whichever event occurs later), or all amounts withdrawn may become subject to the penalty tax.

Qualified Higher Education Expenses

IRA early withdrawals used to pay qualified higher education expenses on behalf of you, your spouse, or the children or grandchildren of you or your spouse, are exempt from the 10% penalty tax if they were paid to an eligible educational institution.

First-Time Home Purchase

Up to $10,000 of an IRA early withdrawal that is used to buy, build, or rebuild a first home for an ancestor (parent or grandparent), yourself, a spouse, or you or your spouse's child or grandchild, may be exempt from the 10% penalty tax if you meet the IRS definition of a first-time home buyer.

If both you and your spouse qualify as first-time home buyers, then each of you could withdraw $10,000 from each of your respective IRAs without paying the 10% penalty tax.

The distribution must be used to pay qualified acquisition costs (which includes reasonable closing costs) before the close of the 120th day after the day you received it.

Qualified Reservist Distributions

A qualified reservist distribution is not subject to the penalty tax on IRA early withdrawals.

According to the IRS, a distribution you receive is a qualified reservist distribution if the following requirements are met:

  • You were ordered or called to active duty after Sept. 11, 2001.
  • You were ordered or called to active duty for a period of more than 179 days or for an indefinite period because you are a member of a reserve component.
  • The distribution is from an IRA or from amounts attributable to elective deferrals under a section 401(k) or 403(b) plan or a similar arrangement.
  • The distribution was made no earlier than the date of the order or call to active duty and no later than the close of the active duty period.

The rules outlined in this article come from the online IRS Publication 590-B, where you can find additional information on IRA penalty exceptions.

Article Sources

  1. Internal Revenue Service. "IRA FAQs - Distributions (Withdrawals)." Accessed May 5, 2020.

  2. Internal Revenue Service. "Publication 590-B (2019): Distributions From Individual Retirement Arrangements (IRAs)," Page 22. Accessed May 5, 2020.

  3. Internal Revenue Service. "Publication 590-B (2019): Distributions From Individual Retirement Arrangements (IRAs)," Pages 22-23. Accessed May 5, 2020.

  4. Internal Revenue Service. "Publication 590-B (2019): Distributions From Individual Retirement Arrangements (IRAs)," Page 23. Accessed May 5, 2020.

  5. Internal Revenue Service. "Is There Guidance on This Exception?" Accessed May 5, 2020.

  6. Internal Revenue Service. "Is There an Exception to the Tax for Distributions in Substantially Equal Periodic Payments?" Accessed May 5, 2020.

  7. Internal Revenue Service. "Publication 590-B (2019): Distributions From Individual Retirement Arrangements (IRAs)," Page 24. Accessed May 5, 2020.