10 Ways To Take An Early Distribution Without A Tax Penalty

Jun 12, 2023
Est. Read Time: 3 minutes

How can I take an early distribution without a 10% tax penalty? 

We know that IRAs are a terrific way to invest in your future as income taxes on profits are deferred or even income tax-free. When Congress started the IRA in 1974 their intent was simple; Congress would provide us with a major break on income tax if we save for our retirement. Okay, but when is “retirement”? Retirement age comes at a different time for each of us, which meant Congress would need to define when retirement could start. They decided it was 59.5 – even if 59.5 was a number pulled from a hat, Congress just needed a number.

What all this meant was simple; we’d receive a large tax break if we were saving for retirement, however, take the money out before age 59.5 and Congress said, “This person is not saving for retirement”.

Penalty for taking a distribution from an IRA prior to age 59.5

The IRS said anyone who takes a distribution prior to age 59.5 did not hold up their end of the bargain by withdrawing money prior to retirement. Because of this, the IRS imposed a penalty of 10% on early distributions.

But wait…

Over the years, Congress began recognizing there were scenarios in which a distribution before age 59.5 should be allowed without a penalty.

10 Ways to take a Distribution from an IRA before age 59.5 without a 10% Tax Penalty:

*Please note that each of the following have their own stipulations – this listing is to provide readers with an overview.


Birth or Adoption A new addition to the family is expensive and even the IRS has figured that out.

There are limits and funds must be spent for the benefit of the new family member.

Expenses for Higher Education For you or a family member.

Includes the cost of tuition, books, and campus room and board.

First Time Home Buyer


Maximum $10,000.00.
Health Insurance Premiums This helps you to keep your insurance in place if you are unemployed.
Medical Expenses over 7.5% of your Adj. Gross Income You must provide proof and only use the funds to pay for medical costs.
Military Reservists if you are called up There are limits on the amounts of the penalty-free distribution.
To pay for an IRS Levy or penalty Similar to medical distributions, the money must be used to pay fines.
Substantially equal payments starting at

age 55

Hire a CPA to draft any age 55 early withdrawal plan -Once you start an early withdrawal plan you are not allowed to stop drawing the money in regular and equal amounts.
Disability For this exception, Congress is referring to a Major Disability. The definition is strict, which means the hurdle can be very high.
Death of the IRA Account owner. Should the IRA owner die before age 59.5, the beneficiaries withdrawing money do not pay an early distribution penalty.



IRAs may be the best retirement savings and investment plans Congress has ever devised. Continuing to grow your funds until retirement will provide the most money for your future, however, along the way complications can occur. Should you run into any drawbacks, the plans have a few small backdoors for IRA owners to help bridge the gap. Click here for more information about taking early distributions.




For information about a Self Directed IRAs, Solo 401(k)s, or alternative investments,
call IRA Club at 312-795-0988 or click here to schedule a call.



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