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Here’s When You Can Tap Your IRA or 401(k) Early Without Penalty

January 11, 2024
Historically, it has been difficult to withdraw funds from retirement accounts without having to pay a penalty. The Secure 2.0 Act, passed in December 2022, includes over 20 exceptions that waive the 10% early-withdrawal penalty from IRAs and workplace plans for people under age 59½.

In this article, Leonard Sloane of The Wall Street Journal details several of these early-withdrawal exemptions that you should know about.


It isn’t always easy to withdraw money early from retirement accounts without paying a penalty. But, in fact, it may be easier than you think.

That’s because the Secure 2.0 Act, which was signed into law in December 2022, included more than 20 rules that address exceptions that waive the 10% early-distribution penalty for withdrawals from IRAs and workplace plans by those under age 59½.

“If you don’t know about these provisions, you could miss a tax break or break a rule,” says Sarah Brenner, director of retirement education at Ed Slott & Co., a tax-consulting firm in Rockville Centre, N.Y. “For the right person, it could be a big deal.”

Brenner warns that before making a distribution from an IRA or 401(k), consider two points: Retirement account funds are designed for postcareer use and generally shouldn’t be tapped unless no other options are available. And any funds withdrawn, except from a Roth account, is income that will most likely be taxed federally and by some states.

Here are some early-withdrawal exemptions to know about:

• Starting this year, IRA and 401(k) holders will be allowed a penalty-free distribution to pay bills for financial emergencies. This exemption is limited to one withdrawal a year and a maximum of $1,000 for “unforeseeable or immediate financial needs relating to personal or family emergencies.”

In a related move, employees at some companies will be allowed to establish Roth emergency-savings accounts starting this year. These plans can be set up only at companies that offer them and are capped at a total of $2,500 per participant. And since it is a Roth account, withdrawals are tax-free.

• Workers who have a total and permanent disability because of a physical or mental condition are free to make early withdrawals from IRAs or workplace plans—but there is a high bar to clear.

“It means that you can’t engage in any substantial gainful activity,” says Avery Neumark, senior consultant to CBIZ Marks Paneth, an accounting firm in New York. “So you’ve really got to be disabled.”

• Victims of domestic abuse within the past 12 months by a spouse or domestic partner can withdraw from their IRAs or workplace plans the lesser of $10,000 or 50% of their account.

• People in areas where there has been a federally declared natural disaster are now able to withdraw up to $22,000 from their IRAs and 401(k)s without penalty.

This makes permanent a type of relief for hurricanes, wildfires or floods that had been administered on an ad hoc basis. Previously, Congress stitched together relief packages for disaster victims that may or may not have forgone the penalty. It was waived for Hurricane Katrina in 2005, but not for Hurricane Sandy in 2012.

• Those who are diagnosed with a terminal illness—defined in the law as an illness reasonably expected to result in death within seven years—are allowed penalty-free withdrawals of any amount from IRAs and employer plans.

• For IRA holders, including those with SEP IRAs and Simple IRAs, penalty-free withdrawals may be made for medical insurance for you, your spouse or your dependents. But you must be unemployed to benefit from this exception, defined as receiving unemployment compensation for at least 12 consecutive weeks.

• Other early-withdrawal exceptions for IRAs include withdrawals for qualified higher education expenses at an accredited institution for you, your spouse, your children or your grandchildren and for first-time home buyers up to $10,000.

• Other exceptions for workplace plans like 401(k)s include receiving a qualified domestic-relations order stemming from a divorce and for public-safety employees who are age 50 or have 25 years of service.

A complete list of exceptions to the 10% early-distribution penalty can be found in IRS Publication 590-B.



Leonard Sloane
The Wall Street Journal

Alex Nabaum


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