Here are some circumstances under which the IRS will waive the early-distribution penalty for withdrawing from your IRA.
- Un-reimbursed medical expenses – If you do not have health insurance or your medical expenses are more than your insurance will cover for the year, you may be able to take penalty-free distributions from your IRA to cover these expenses. Keep in mind, that only the difference between these expenses and 7.5% of your adjusted gross income is eligible for this exception.
- Medical insurance – If you are unemployed, you may take penalty-free distributions from your IRA to pay for your medical insurance. Certain conditions apply, so ask you tax professional for more detail.
- If you are disabled – If a physician determines that, because of an indefinete mental or physical disability, you are unable to engage in any gainful employment, you are allowed to take penalty-free distributions from your IRA.
- Higher education expenses – Expenses for higher education for you, your spouse or children or grandchildren of you or your spouse may be paid for by penalty-free distributions from your IRA. Consult with your tax professional to determine if your expenses qualify as higher-education expenses.
- Inherited IRA assets – If you are the beneficiary of a deceased person’s IRA, amounts you distribute from the inherited IRA are not subjected to early-distribution penalties. Check with your IRA custodian/trustee regarding the documentation required for processing the transaction.
- First time home owner – The IRS allows you a penalty-free distribution of up to $10,000, including closing costs, if you are purchasing, building or re-building your first home. The IRS considers your home as a first-time home if you have not owned a home for the past two years. This $10,000 is a lifetime limit. An additional $10,000 is allowed for your spouse.