When Can an IRA Owner Make Penalty-Free Withdrawals?

Money pulled from a traditional IRA before age 59½ normally gets hit with a 10% early distribution penalty on top of ordinary income tax, but the tax code lists more than a dozen situations where penalty-free IRA withdrawals are allowed.¹ The exceptions cover disability, terminal illness, medical bills, first-home purchases, higher education, the birth or adoption of a child, federally declared disasters, and several others. If your reason for taking money out fits one of these categories, you can keep the 10% the IRS would otherwise take.

How the 10% Penalty Works

Any distribution from a traditional IRA taken before you turn 59½ is treated as an early withdrawal, and the 10% additional tax applies to the taxable portion.² That’s on top of the regular income tax you already owe on every traditional IRA dollar. Someone in the 22% bracket pulling out $20,000 loses roughly $6,400 between the two.

Every exception below waives the 10% penalty only. The withdrawn funds are still taxable as ordinary income unless the money is coming from a Roth account.

You claim an exception on IRS Form 5329. Qualifying and reporting are two different steps: if you skip Form 5329, the IRS may assess the penalty automatically even when you had a valid exception.³

Health and Life-Event Exceptions

Death of the Account Owner

Distributions paid to a beneficiary or estate after the owner’s death are always exempt from the 10% penalty, regardless of the beneficiary’s age.¹ Income tax still applies to traditional IRA distributions, but the penalty disappears.

Total and Permanent Disability

If you become totally and permanently disabled, you can withdraw at any age without the penalty.⁴ A physician must certify that your condition prevents any substantial work and is expected to last indefinitely or result in death. A temporary illness that sidelines you for a few months does not qualify.

Terminal Illness

Added by the SECURE 2.0 Act, this exception applies when a physician certifies that you have an illness or condition reasonably expected to result in death within 84 months.⁵ There is no dollar cap. If your health improves, you can repay the distribution within three years and reverse the tax hit.

Unreimbursed Medical Expenses

You can withdraw penalty-free to cover unreimbursed medical costs, but only the portion above 7.5% of your adjusted gross income qualifies.⁶ With an AGI of $80,000 and $10,000 in bills, only $4,000 escapes the penalty. You don’t need to itemize to use this. The expenses can be for you, your spouse, or your dependents.

Health Insurance Premiums During Unemployment

If you’ve lost your job, IRA money used to pay health insurance premiums for you, your spouse, and your dependents can come out penalty-free. Three conditions apply: you must have received unemployment compensation for at least 12 consecutive weeks, the distribution must occur in the year you received those benefits or the following year, and it can’t come more than 60 days after you start a new job.¹ Only the amount actually spent on premiums qualifies.

Family and Major-Expense 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.¹ A married couple with separate IRAs can combine for $20,000. “First-time” is generous: you qualify if you haven’t owned a principal residence in the two years before the purchase.

The money has to be used for qualifying acquisition costs within 120 days of receiving the distribution. If the deal collapses, redepositing the funds into your IRA inside that same 120-day window avoids the penalty. Miss the window and the whole amount becomes a regular early distribution.

Higher Education Expenses

Tuition, fees, books, supplies, and required equipment at eligible post-secondary institutions all qualify.¹ Room and board qualify if the student is enrolled at least half-time, capped at what the school lists in its cost of attendance for financial aid purposes. Expenses can be for you, your spouse, your children, or your grandchildren. Only the amount matching actual education costs paid during the tax year is protected; withdraw more and the excess gets the 10% tax.

Birth or Adoption

You can withdraw up to $5,000 per child, penalty-free, when a child is born or when a legal adoption is finalized.⁷ The distribution has to occur within one year of the birth or finalization. An adopted child must be under 18 or physically or mentally unable to support themselves. Both parents can each pull $5,000 from their own IRAs for the same event, for a combined $10,000. You can repay within three years.

Domestic Abuse

Starting in 2024, victims of domestic abuse by a spouse or domestic partner can withdraw the lesser of $10,000 (indexed for inflation) or 50% of the account balance, penalty-free.¹ Repayment is allowed within three years, and repaying restores the income tax you paid.

Emergency Personal Expenses

SECURE 2.0 also allows one penalty-free withdrawal per calendar year for an unforeseeable personal or family emergency, capped at the lesser of $1,000 or your vested balance above $1,000.¹ If you don’t repay within three years, you can’t take another one during the repayment window. This is a small-dollar safety valve, not a way to drain the account.

Financial and Legal Exceptions

IRS Levy

When the IRS levies your IRA to collect unpaid taxes, the resulting distribution is exempt from the 10% penalty.¹ The exception is narrow: it covers IRS levies, not creditor judgments, divorce awards, or other legal claims.

Federally Declared Disasters

If you live in a federally declared disaster area and suffer an economic loss from it, you can withdraw up to $22,000 penalty-free.⁸ SECURE 2.0 made this permanent, so it no longer depends on Congress passing disaster-specific legislation. You have three years to repay and recover the taxes paid, and if you don’t repay, you can spread the income tax over three years.

Qualified Reservist Distributions

Military reservists called to active duty for at least 180 days can take penalty-free distributions during the active-duty period.¹ These distributions can be repaid within two years after active duty ends.

Substantially Equal Periodic Payments

When none of the life-event exceptions fit but you need steady income before 59½, substantially equal periodic payments (SEPP) offer another route. You commit to a fixed series of payments calculated from your account balance and life expectancy, and every distribution in the series escapes the 10% penalty.⁹ Early retirees often use SEPP to bridge to 59½.

The IRS allows three calculation methods: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method. For the two fixed methods, the interest rate you pick can’t exceed the greater of 5% or 120% of the federal mid-term rate for either of the two months before your first payment. Once you choose a method, you’re generally locked in, though the IRS permits a one-time, irrevocable switch from either fixed method to the RMD method.¹⁰

SEPP’s real danger is the recapture rule. Payments have to continue without modification for the longer of five full years or until you turn 59½. Change the amount, take an extra distribution from the same IRA, or stop early, and the IRS retroactively applies the 10% penalty to every distribution in the series, with interest. Only death and disability end SEPP without triggering recapture.⁹

Roth IRAs Work Differently

If your question is about a Roth IRA, the rules are more forgiving because Roth contributions are made with after-tax money. You can withdraw your original Roth contributions at any age, for any reason, tax-free and penalty-free. Earnings are a different story: they come out tax-free and penalty-free only when the distribution is “qualified,” meaning you’ve had a Roth open at least five tax years and you’re at least 59½, permanently disabled, taking the money after death as a beneficiary, or using up to $10,000 for a first home purchase.¹¹ Converted amounts have their own five-year clock before they can come out penalty-free under 59½.

Inherited IRAs

Inherited IRAs are always exempt from the 10% early withdrawal penalty, whatever the beneficiary’s age.¹ The problem with inherited IRAs isn’t the penalty. It’s the payout deadline.

For most non-spouse beneficiaries who inherited from someone who died after December 31, 2019, the account has to be emptied by the end of the tenth year after the year of death.¹² Eligible designated beneficiaries can still stretch distributions over their own lifetime: a surviving spouse, a minor child of the deceased (until reaching the age of majority), a disabled or chronically ill individual, and anyone not more than 10 years younger than the original owner. Missing the deadline triggers a 25% excise tax on the amount you should have withdrawn, dropping to 10% if you correct it within two years.¹³

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. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) – Section: What Are Qualified Distributions
12
Internal Revenue Service. Retirement Topics – Beneficiary – Section: Death of the Account Holder Occurred in 2020 or Later
13
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs