top of page

9 Penalty-Free IRA Withdrawals

Updated: Jul 21, 2022

The contributions you make to your IRA are intended to supplement your income during your retirement years. However, as much as you would like to let your IRAs remain untouched until retirement, unforeseen expenses may force you to distribute some of those assets prematurely.

Should you decide to take a distribution from your IRA, these amounts may be subject to federal and state taxes. What's more, if you are under the age of 59½ when the distribution occurs, you may be assessed an additional 10% early-distribution penalty on any taxable amount. The IRS imposes this penalty to deter individuals from taking premature distributions from their retirement accounts. Fortunately, it also provides exceptions under which the penalty may be waived. Here are the circumstances under which the IRS will waive this early-distribution penalty.

1. Unreimbursed Medical Expenses

If you do not have health insurance or your medical expenses are more than your insurance will cover for the year, you may be able to take penalty-free distributions from your IRA to cover these expenses. Note, however, that only the difference between these expenses and 7.5% of your adjusted gross income (AGI) is eligible for this exception.

For example, if your adjusted gross income is $100,000 and your un-reimbursed medical expenses are $11,000, the maximum amount that you can distribute penalty free is $3,500, which is the difference between $11,000 and 7.5% of your AGI ($7,500). Your tax professional should be able to help you determine your AGI. Starting in 2019, the AGI number will rise to 10%. In the example above, you'd only be able to distribute $1,000 [the difference between $11,000 and 10% of $100,000 ($10,000)]. 

“The unreimbursed medical expenses...must be paid the same calendar year you are withdrawing from your IRA," says Carlos Dias Jr., wealth manager, Excel Tax & Wealth Group, Lake Mary, Fla.

2. Medical Insurance