How to Withdraw Retirement Funds Without Triggering Penalties
Many exceptions waive the 10% early withdrawal penalty, but some apply only to IRAs and others only to employer plans. None of them removes the income tax.
Taking money from a 401(k) or traditional IRA before age 59½ generally adds a 10% tax on top of ordinary income tax. Exceptions waive the 10%, including disability, certain medical expenses, the Rule of 55 (employer plans only), a first-time home purchase (IRAs only), and newer SECURE 2.0 options such as emergency expenses and distributions for domestic abuse victims. No exception waives the income tax on the withdrawal.
If you need money before retirement age, check whether an exception fits before you withdraw. The rules differ by type of account. Taking the money from the wrong account can cost you a penalty you could have avoided. The rule is in Internal Revenue Code §72(t), and the SECURE 2.0 Act added several exceptions.
The basic rule
A withdrawal from a traditional IRA, 401(k), 403(b) or similar tax-deferred account before age 59½ generally carries a 10% additional tax, charged on the taxable part of the withdrawal, on top of ordinary income tax. From 59½ the penalty no longer applies and you need no exception.
Which exception works with which account
| Exception | IRA | Employer plan | Limit |
|---|---|---|---|
| Total and permanent disability | Yes | Yes | None |
| Death (paid to beneficiary or estate) | Yes | Yes | None |
| Terminal illness | Yes | Yes | Condition expected to result in death within 84 months |
| Unreimbursed medical expenses | Yes | Yes | The part above 7.5% of adjusted gross income |
| Substantially equal periodic payments (SEPP) | Yes | Yes | Must continue 5 years or until 59½, whichever is later |
| Birth or adoption | Yes | Yes | $5,000 per child, within 1 year |
| Emergency personal expense | Yes | Yes | $1,000 per calendar year |
| Domestic abuse victim | Yes | Yes | Lesser of $10,000 (indexed) or 50% of the balance |
| Federally declared disaster | Yes | Yes | $22,000 per disaster |
| First-time home purchase | Yes | No | $10,000 lifetime |
| Higher education expenses | Yes | No | None |
| Rule of 55 | No | Yes | Only the plan of the job you leave at 55 or later |
| Long-term care insurance premiums | No | Yes | Least of premiums paid, 10% of vested balance, or $2,600 (2026) |
Exceptions that apply to both IRAs and employer plans
Total and permanent disability
No dollar limit. Applies to both IRA and employer plan distributions.
Death
Distributions to a beneficiary or estate after the account owner's death.
Terminal illness
Added by SECURE 2.0, for a condition expected to result in death within 84 months.
Unreimbursed medical expenses
Only the portion exceeding 7.5% of your adjusted gross income.
Substantially Equal Periodic Payments (SEPP/72(t))
A fixed distribution schedule that must continue for at least 5 years or until 59½, whichever is later. Changing the schedule early brings back the penalty on all earlier payments.
IRS levy, qualified reservist, birth or adoption
IRS levy has no dollar limit. Qualified reservist applies to reservists called to active duty for more than 179 days. Birth or adoption allows up to $5,000 per child, within 1 year of the event.
Exceptions that apply to IRAs only
- First-time home purchase. Up to $10,000 over your lifetime, for a qualifying first-time buyer: you, your spouse or certain family members.
- Higher education expenses. No dollar limit, for qualified education costs for you, your spouse, children or grandchildren.
If the money is in a 401(k) from a former employer and you want to use one of these, you would generally roll it into an IRA first and then withdraw.
Exceptions that apply to employer plans only
Rule of 55
If you leave your job in or after the calendar year you turn 55 (age 50 for qualified public safety employees), you can take penalty-free distributions from that employer's 401(k) or 403(b). It applies only to the plan from the job you are leaving, not to IRAs and not to 401(k)s from earlier employers.
Long-term care insurance premiums
Added by SECURE 2.0, for distributions after December 29, 2025. Available from employer defined-contribution plans only, limited to the least of premiums paid, 10% of your vested balance, or $2,600 for 2026.
The Rule of 55 is lost if you roll that 401(k) into an IRA before you withdraw. Leave the money in the plan if you expect to need it before 59½. Also ask the plan whether it permits partial withdrawals, since some allow only a lump sum.
Newer SECURE 2.0 options
- Emergency personal expense. Up to $1,000 per calendar year, on your own certification. You generally cannot take another until you repay it or three years pass.
- Domestic abuse victim distribution. The lesser of $10,000 (indexed for inflation) or 50% of the account balance, within 1 year of the abuse. You certify it yourself and can repay within 3 years.
- Federally declared disaster. Up to $22,000 per disaster.
Every exception leaves the income tax in place
The exceptions waive only the 10% penalty. A withdrawal from a traditional, pre-tax account is still ordinary taxable income in the year you take it. A large withdrawal can move you into a higher bracket, make more of your Social Security taxable, or reduce benefits and credits that depend on income, such as ACA premium subsidies.
Two alternatives to check first
- Roth IRA contributions. You can take out the amount you contributed to a Roth IRA at any age with no tax and no penalty. The earnings are treated differently.
- A 401(k) loan. If your plan offers loans and you are still employed there, a loan is not a taxable withdrawal as long as you repay it on schedule.
An example
Someone aged 56 leaves a job and needs $20,000 from that employer's 401(k). They left in or after the year they turned 55, and the money comes from that employer's plan, so the Rule of 55 applies and there is no 10% penalty. They still owe ordinary income tax on the $20,000. They avoid the $2,000 penalty.
If they had rolled the account into an IRA first, the $2,000 penalty would apply. Our early withdrawal penalty calculator estimates the tax and penalty for your own figures.
Frequently Asked Questions
At what age can I withdraw from my 401(k) or IRA without a penalty?
Age 59½. Withdrawals before that generally carry a 10% additional tax on top of ordinary income tax, unless an exception applies.
What is the Rule of 55 and how does it work?
It lets you take penalty-free distributions from your most recent employer's 401(k) or 403(b) if you leave that job in or after the year you turn 55 (age 50 for qualified public safety employees). It applies only to that employer's plan, not to IRAs or to 401(k)s from earlier employers.
Can I use my IRA penalty-free for a first-time home purchase?
Yes, up to $10,000 over your lifetime, and only from an IRA. The exception does not apply to withdrawals from a 401(k) or other employer plan.
Do these exceptions also waive income tax on the withdrawal?
No. They waive only the 10% additional penalty. The withdrawal is still generally taxable as ordinary income in the year you take it.
What new penalty exceptions did SECURE 2.0 add?
Among others: up to $1,000 a year for a personal emergency expense, up to $10,000 for domestic abuse victims, terminal illness, federally declared disasters (up to $22,000), and long-term care insurance premiums paid from employer plans.
This article is for general educational purposes and reflects IRC §72(t) and SECURE 2.0 provisions as of October 2026. It is not tax or financial advice. The exceptions have documentation and dollar-limit rules not fully covered here. Consult a licensed tax professional before taking an early distribution.