For traditional IRA, or investment retirement account, investments, there is a series of set rules issued by the Internal Revenue Service (IRS) that governs when and how distributions can be taken from an IRA account. For IRA account holders who do not have need of taking early distributions, which is defined as any distribution taken before the account holder reaches the legal retirement age of 59 1/2, it becomes fairly simple to invest into and manage an IRA account. But for IRA account holders who have need of taking an early withdrawal of funds from their IRA investment account, the process becomes more complicated. This is because the IRS assesses penalties for most types of early withdrawals from an IRA account. The reason for this is that an IRA account is a specific type of retirement-focused investment account that offers the account holder protection from paying taxes on invested funds on either the front or back end, depending on whether the IRA is a traditional or a Roth IRA account. However, there are certain rules which will allow you to take an early withdrawal from your IRA account without penalty. Learn if you qualify to take an early withdrawal and decide if this is the best option for you.
For general purposes, taking an early withdrawal from an IRA, as defined by any distribution taken before you reach age 59 1/2, usually has some kind of financial hardship at its root. Since most IRA account holders open these accounts specifically for the tax deferred retirement savings planning benefits they provide, the IRS recognizes that if an account holder wishes to take an early distribution, there may be some kind of specific financial need driving that decision that the account holder does not know how to meet in any other way. So for the purposes of funding higher education, medical expenses, or a first time home buyer purchase, disability, or medical premiums, for instance, early distributions are allowable before age 59 1/2 without penalty.
The rules state that a first time home buyer can take out up to $10,000 in early IRA distributions without penalty for this specific purpose. For medical expenses, if the account holder needs to take out any early distribution of any amount to pay for medical policy premiums while unemployed, to pay for expenses when permanently disabled, or to pay for medical expenses that are unreimbursed and account for more than 7.5 percent of adjusted gross income, then the early withdrawal can be made without penalty. Additionally, any amount of any size can be withdrawn early so long as the full amount is used for education expenses for the account holder, children, or grandchildren. Finally, an early distribution from an IRA account is allowable if the withdrawal is to make a beneficiary payment to an IRA beneficiary upon the account holder's passing. A final note to consider when taking early withdrawals from an IRA account is that any amount you withdraw will be treated as normal taxable income at tax time.