12 Exemptions to Avoid the Early IRA Withdrawal 10% Tax Penalty

When you make an early withdrawal from a traditional IRA before the age 59.5, it will generally incur a 10% penalty tax on the taxable portion of the withdrawal. There are several exceptions to this rule that can help you avoid this penalty under specific circumstances. Here are 15 exemptions that may enable you to avoid the early withdrawal tax penalty:

1. Substantially Equal Periodic Payments

You can arrange for a series of substantially equal periodic payments. This method requires careful calculation and adherence to strict rules but allows penalty-free withdrawals.

2. Medical Expenses

Withdrawals for medical expenses exceeding 7.5 percent of your adjusted gross income (AGI) are exempt from the penalty.

3. Higher Education Expenses

You can use penalty-free early IRA withdrawals for qualified higher education expenses for you, your spouse and your children.

4. First-Time Home Purchase

You can withdraw up to $10,000 (lifetime limit) for qualified home acquisition costs without penalty.

5. Birth or Adoption

You can withdraw up to $5,000 for expenses related to the birth or adoption of a child.

6. Emergency Expenses

As of 2024, you can withdraw up to $1,000 annually for emergency personal expenses without penalty.

7. Disaster Recovery

Withdrawals for qualified disaster recovery expenses are exempt from the penalty, up to an aggregate limit of $22,000.

8. Disability

If you are disabled and cannot engage in substantial gainful activity, you can withdraw funds without penalty.

9. Long-Term Care

Beginning December 29, 2025, you can take penalty-free withdrawals for qualified long-term care expenses.

10. Terminal Illness

Withdrawals due to terminal illness are exempt from the penalty.

11. Post-Death Withdrawals

Amounts withdrawn after the IRA owner’s death are not subject to the penalty.

12. Military Reservists

Active-duty military reservists called to duty for at least 180 days can withdraw funds without penalty.

These are some of the exemptions that can allow you to avoid paying the 10% tax penalty on early IRA withdrawals. If you are planning a withdrawal, need help managing your retirement savings or planning for your future, contact the team at Illumination Wealth for expert financial advisement.