IRA Withdrawal Rules: What You Need To Know To Avoid Penalties

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An individual retirement account is an excellent way to save for retirement. Many employers allow you to invest pretax money in your IRA right from your paycheck, so it’s easy and convenient. However, you’ll pay taxes on that money when you go to withdraw it, and possibly penalties as well.

The CARES Act gave investors a little bit more leeway, but early withdrawal rules are back for 2021. You might be wondering when you can withdraw money from your IRA without incurring penalties or how you can avoid a hefty tax bill. Read on to learn about IRA withdrawal rules that you should be aware of.

IRA Withdrawals Rules To Consider If You’re Under 59 ½

If you’re younger than 59 ½, you’ll incur a 10% penalty by tapping into your retirement account early.

These penalties apply to traditional IRAs and SEP, SIMPLE IRA, and SARSEP plans. You’ll also pay taxes on the amount you withdraw unless you withdraw from a Roth IRA. You’re going to have to pay taxes on any withdrawals no matter what, but there are some exceptions to the early withdrawal penalties.

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1. Buying a First Home

Qualified first-time homebuyers can withdraw as much as a pretax amount of $10,000 without penalty. You’ll still owe taxes on the money.

If you and your spouse both have IRAs, you can withdraw up to $20,000. You can also use the money to help a first-time homebuyer in your family, such as your child, your spouse’s child, your grandchild, your spouse’s grandchild, your parents, or another ancestor. Make sure you use the money within 120 days after you withdraw it.

2. Qualified Higher Education Expenses

You can use money from your IRA to fund higher education expenses for you, your spouse, your child or your grandchild. You can use the money for books, tuition, fees or even room and board if the person attends school more than half time.

There’s no limit to how much you can withdraw. Keep in mind that withdrawing from either a Roth or a traditional IRA to pay for college may affect financial aid.

3. Disability

If you become disabled before reaching 59 ½ years old, you can start withdrawing from your IRA without penalties.

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4. Death

Likewise, if you die, your heirs can withdraw from your IRA without penalty.

5. Birth or Adoption

This was new for 2020 — part of the SECURE Act. It allows you to withdraw up to $5,000 per child in the year in which the child was born or the adoption was finalized. Spouses can also withdraw up to $5,000 per child, and if there are multiple children, you can withdraw up to $5,000 each.

6. Medical Expenses

If your unreimbursed medical expenses total more than 7.5% of your adjusted gross income in 2020 — or more than 10% for 2021 — you can use your IRA to pay for those expenses.

7. Health Insurance

If you’re uninsured for more than 12 weeks due to unemployment, you may withdraw money from your IRA to secure health insurance for you and your spouse.

8. Periodic Payments

You can opt to take regular withdrawals at set periodic intervals. You’ll avoid the 10% penalty, but you can’t reverse this once you start.

9. IRS Tax Levy

If you owe money to the IRS, you can make a withdrawal from your IRA to get caught up. To claim the penalty exception, fill out Form 5329.

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10. Reservist Distributions

A reservist called to active duty for at least 180 days can withdraw from their IRA without incurring the 10% penalty.

Good To Know

Once you turn 59 ½, you can take withdrawals from your IRA without incurring any penalties. If it’s a traditional IRA you will pay taxes on the withdrawals, but if it’s a Roth IRA you will have used after-tax dollars to fund the account.

Required Minimum Distribution Rules for Traditional IRAs

You can’t keep funding your IRA indefinitely — eventually, you’re going to have to take withdrawals. These are called required minimum distributions.

If your 70th birthday is July 1, 2019, or later, you aren’t required to start taking withdrawals until you turn 72. If you turn 70 before July 1, 2019, you will need to start taking RMDs when you turn 70 ½.

To calculate your RMD, the IRS provides worksheets. Or you can use this formula:

  1. Take the IRA balance from Dec. 31 of the previous year.
  2. Get the distribution period from the table below for your age on your birthday of this year.
  3. Line 1 divided by the number you entered on line 2 is your RMD.

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Age Distribution Period Age Distribution Period
70 27.4 82 17.1
71 26.5 83 16.3
72 25.6 84 15.5
73 24.7 85 14.8
74 23.8 86 14.1
75 22.9 87 13.4
76 22.0 88 12.7
77 21.2 89 12.0
78 20.3 90 11.4
79 19.5 91 10.8
80 18.7 92 10.2
81 17.9 93 9.6

You can take more than the minimum, but you must take at least your RMD by Dec. 31 each year. Also keep in mind that the distributions will be taxed at your ordinary income tax rate if you withdraw from a traditional IRA, a SIMPLE IRA, a SEP, or a SARSEP IRA. If you withdraw from a Roth, withdrawals are tax-free because you paid taxes on your money before you invested it.

Don’t forget to take your RMDs, or you’ll have to pay up to 50% excise tax on the money you should’ve withdrawn but didn’t.

Bottom Line

If you’re between 59 ½ and 72, you can do whatever you want. You can either take withdrawals from your IRA without penalty — although the money will be taxed as income — or you can leave it alone and let it grow until you reach 72.


It’s tempting to tap into your retirement funds, but unless you meet one of the early withdrawal penalty exemptions, you’ll pay taxes and a penalty. Consider a home equity loan or a home equity line of credit instead.

You’re going to need money in retirement, so do everything you can to save it until then.

Natalie Campisi contributed to the reporting for this article.