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7 Penalty Free Ways to Withdraw Money from Your Retirement Account

by Ryan Vance


Under most circumstances, an early withdrawal of money from a 401K account or IRA (Individual Retirement Account) would trigger a 10% penalty fee. However, there are certain circumstances when you can withdraw money from your IRA without penalty. Here are 7 ways to access that money early without penalty.

Health Insurance Premiums during Unemployment

If you become unemployed and lose your health coverage, you will definitely have difficulty affording monthly premiums. Once you have been unemployed for 12 weeks continuously, the IRS allows you to make a penalty free withdrawal from your IRA (Individual Retirement Account) to cover health insurance premiums. This privilege will expire once you have been reemployed for 60 days and more.

First Home Purchases

If you find yourself in a situation whereby you are $10,000 or less short of the down payment for your first home purchase, then you can withdraw from your IRA without penalty. This withdrawal can also be applied to the payment of qualified cost of buying, building, or rebuilding a property. The qualified cost must, however, be paid no later than 120 days after the withdrawal is made from your IRA account.

Higher Education Expenses

You can also apply for an early withdrawal from an IRA account without incurring penalty to cover qualified higher education expenses. This includes the cost of tuition, books, supplies, and equipment required for the attendance of a higher institution. This privilege applies whether you are the person getting a higher education, your spouse, children, grandchildren, or dependents. Remember that withdrawals from an IRA account would most likely count as an income for the student beneficiary thereby limiting eligibility for financial aid.

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IRS (Internal Revenue Service) Debts

Another scenario when the 10% penalty will not apply to an early withdrawal from an IRA is if the withdrawal is meant to pay an IRS debt.

Large Medical Bills

If you incur large medical bills, a withdrawal to pay those bills would be exempted from the 10% penalty fee for early withdrawals. Note that you would need to provide evidence that the withdrawal is meant to pay for medical expenses.

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Cover Expenses after Disability

Another instance when you can withdraw from your IRA early without penalty is to cover expenses after a total or permanent disability. You will, however, have to provide documentation from your physician to be eligible for this privilege.

401K Loan

You are allowed by the IRS to borrow against your 401K provided your employer permits it without triggering the 10% penalty fee.

Expert Interview: How a 401k Loan Affects Future Wealth

Reviewed November 2017


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