Early IRA Withdrawal Penalty Exceptions

Accessing your retirement funds before age 59½ might seem like a last resort. Still, sometimes life throws unexpected challenges our way—medical bills, education costs, a job loss, or even helping a loved one through a difficult time. If you need to tap into your IRA or workplace plan early, it’s important to know that you might be able to do so without triggering the usual 10% early withdrawal penalty.

New Rules with Secure Act and Secure Act 2.0

More exceptions than ever exist thanks to recent updates from the SECURE Act and SECURE Act 2.0. These exceptions may allow penalty-free early withdrawals from retirement accounts. However, these rules are not one-size-fits-all. Some exceptions apply only to IRAs, while others are exclusive to employer-sponsored plans.

Here’s a quick example: Leah, a 52-year-old small business owner, faced an unexpected surgery with out-of-pocket medical expenses that exceeded 7.5% of her adjusted gross income. She decided to withdraw funds from her IRA to cover the bills. She qualified for the medical expense exception because she paid the expenses, and took the distribution within the same calendar year, thus avoiding the 10% penalty. The exception might not have applied if she had waited to pay the bill until the following year.

These types of details can make or break your tax situation. And even when you qualify for an exception, the IRS doesn’t always make it obvious. In many cases, the 1099-R you receive will still say “early, no known exception.” That doesn’t mean all is lost. Filing IRS Form 5329 with your tax return allows you to claim the exception officially.

Whether you’re considering early retirement, facing an unexpected expense, or want to understand your options better, we’ve created a helpful resource to walk you through the key points. Download our free guide: “Avoiding the 10% Penalty in 5 Easy Steps.”

Financial Success Doesn’t Happen By Chance

If you’re not sure which exception applies to your situation or how to navigate your specific retirement plan, we’re here to help.

Contact RFG Wealth Advisor at 940-464-4104, to schedule a time to discuss your retirement planning and early withdrawal strategies. Or schedule a 15-minute free virtual consultation here. 

RFG Wealth Advisory in Argyle, Texas, is an independent, fee-only Registered Investment Advisor firm that puts your interests first. We have a transparent and easy-to-understand fee structure for your peace of mind, and we’re here to help you make smart decisions for your future.

Schedule your free consultation or call us today.

Investment advice is offered through RFG Wealth Advisory, a Registered Investment Advisor.