What’s the penalty for early IRA withdrawal?

Before tapping into your IRA, you should consider the implications of an early IRA withdrawal. Here is the penalty you can expect to pay for early IRA withdrawal.

3 min read

When you set aside part of your salary for retirement, you expect to keep the money untouched until when you retire from your job. However, if you have an emergency need, you may be forced to take an early withdrawal from your IRA. Unfortunately, taking an early IRA withdrawal can trigger taxes and penalties.

Early distributions from an IRA before age 59 ½ can trigger a 10% penalty, in addition to income taxes at your tax bracket. The penalty is imposed on taxable funds such as retirement assets held in a traditional IRA. Usually, the IRS imposes a 10% penalty on early withdrawals to dissuade retirement savers from digging into their retirement savings before retirement.

What is the IRA early withdrawal?

When you contribute to an IRA, these funds are allocated to investments where they grow through compounding. These funds are meant for your retirement years, and they should remain untouched until when you reach the required retirement age i.e. age 59 ½.

However, if you withdraw a portion of your taxable income before age 59 ½, this withdrawal is considered an early withdrawal, and you will be hit with a 10% penalty. This penalty may be waived if the distribution qualifies for a hardship withdrawal.

However, if you are 59 ½ or older, you can withdrawal money from your IRA without owing a penalty. Once you turn 72, you must start taking the mandatory minimum distributions based on your life expectancy.

Penalty for early withdrawals from Traditional IRA

When you take a withdrawal from an IRA before 59 ½, you will be charged a 10% penalty on the amount withdrawn. The IRS imposes this penalty to discourage early withdrawals of funds meant for your retirement. This penalty is deducted from the funds withdrawn.

For example, if you withdraw $20,000 before you are 59 ½, you will pay a 10% penalty of this amount i.e. $2,000. You may need to withdraw more to cover the specific expense. For example, if you are withdrawing $20,000 to pay down payment for your home, you may be forced to withdraw more so that it is sufficient to cover the expense and the penalty.

Penalty for Early Withdrawals from Roth IRA

A Roth IRA is funded with after-tax dollars, and this means taxes are taken out in the year when you contribute. Hence, the money you contribute to your Roth IRA is not considered taxable income, and it is not subject to income taxes and penalties. The retirement savings grow tax-free, and distributions in retirement will be tax-free.

However, investments earnings are treated differently from contributions. Any earnings generated from your contributions is considered taxable income, and it is subject to the 10% penalty for early distributions as well as income taxes.

Exemptions to the Penalty for Early IRA Withdrawals

If you withdraw your retirement assets from an IRA before age 59 ½, you will pay a 10% penalty on the amount withdrawn. However, certain expenses are exempted from the IRA early withdrawal penalty. These expenses include:

Medical Expenses

If you have a medical bill that exceeds 10% of your adjusted gross income, you can withdraw from your IRA penalty-free to pay this expense. You cannot withdraw more than you need to pay the medical expenses. Also, these expenses must be paid in the same year you take the distribution from your IRA.

Inherited IRA

If you inherit an IRA, you can take penalty-free distributions if you leave the inherited assets in the inherited IRA. If you are a spouse of the deceased, you can leave the funds in the inherited IRA to qualify for the penalty exemption. However, if you transfer the funds to your IRA, you will pay a penalty if you take a distribution before age 59 ½. If you are a child, grandchild, or other non-spouse beneficiaries of the deceased account owner, you must empty the inherited assets within 10 years of the account owner’s death.


If you have a physical or mental disability that hinders you from working, you qualify to take a penalty-free distribution from an IRA. The plan may require you to provide documentation as proof that you cannot engage in gainful activity due to your disability. The disability must be expected to last for a long time, indefinite period, or result in death.

First-Time Homebuyers

If you are buying or building your first home, you qualify to withdraw up to $10,000 from your IRA without paying the 10% penalty. Once you withdraw these funds, you must spend the money within 120 days to pay for the purchase or construction of your home. If you are married, and your spouse has an IRA, he/she can take another $10,000, hence increasing the withdrawals to $20,000.

Qualified Education Expenses

If you withdraw funds from your IRA to pay qualified college expenses, you will be exempted from the 10% penalty for early distributions. The withdrawal can only be used to pay for qualified post-secondary expenses such as fees, tuition, books, equipment required for enrollment, and room and board. Also, these expenses must for the education of you (the IRA owner), spouse, children, or grandchildren. The student must be seeking to be enrolled into a college, university, or vocation institution that is eligible for federal student aid programs.