Withdrawing funds from a 401(k) or an IRA before age 59½ typically triggers a 10% early withdrawal penalty in addition to ordinary income taxes. However, the tax code includes several exceptions that allow penalty-free access in specific situations. The rules can be complex and depend on the type of account, the reason for withdrawal, and documentation you can provide. Below are seven common exceptions that may let you access your retirement money without incurring the 10% penalty. For your individual situation, consult a tax professional or plan administrator before taking action.

1. Health Insurance Premiums While Unemployed

If you lose your job and the associated health coverage, you may be able to withdraw from an IRA to pay health insurance premiums without the 10% penalty. In general, this exception applies after you have been unemployed for a continuous period (commonly referenced as 12 weeks) and continues until you are reemployed and have had health coverage for a specified period (often noted as 60 days). Keep careful records of your unemployment and premium payments to support the withdrawal if requested by the IRS.

2. Buying Your First Home

The IRS permits penalty-free IRA withdrawals to help buy, build, or rebuild a first home. There is a lifetime limit for this exception—commonly cited as up to $10,000—and it can be used for qualified acquisition costs for yourself, your spouse, or certain family members. The funds must be used for eligible expenses within the rules, and documentation such as purchase contracts or closing statements should be retained.

3. Qualified Higher Education Expenses

Withdrawals from an IRA to pay for qualified higher education expenses are another penalty exception. Eligible expenses generally include tuition, fees, books, supplies, and required equipment for enrollment or attendance at an eligible institution. This can apply for the account owner, the account owner’s spouse, children, or grandchildren. Bear in mind that IRA distributions are typically taxable as income and could affect financial aid eligibility for the student.

4. Paying Certain IRS Debts

Under some circumstances, withdrawals to pay certain federal tax obligations may avoid the 10% early-withdrawal penalty. If you are considering this option, verify exactly which debts qualify and document how the withdrawal will be used to satisfy the tax liability. Contact the IRS or a tax advisor to confirm applicability to your situation.

5. Large Unreimbursed Medical Expenses

Withdrawals to cover substantial unreimbursed medical expenses can be exempt from the early withdrawal penalty. Typically, medical expenses must exceed a certain percentage of your adjusted gross income to qualify, and you will need receipts, invoices, and medical records showing the nature and amount of the expenses. Keep in mind that only the portion that meets the IRS definition of qualifying medical costs is eligible for the exception.

6. Borrowing From a 401(k) (401(k) Loan)

Many employer-sponsored 401(k) plans allow participants to take a loan from their account. A 401(k) loan is not a distribution if it meets plan rules and IRS loan requirements, so it typically avoids the 10% penalty and immediate taxation—provided you repay the loan on schedule. Availability and terms vary by employer plan, so check with your plan administrator for limits, repayment terms, and potential tax consequences if you leave the employer before repaying.

7. Disability

If you become totally and permanently disabled, distributions from retirement accounts may be exempt from the 10% early withdrawal penalty. This exception usually requires certification from a physician and may require additional documentation demonstrating that the disability meets IRS standards. As with other exceptions, confirm the required evidence with a tax advisor before proceeding.

Important Considerations

Even when you qualify for a penalty exception, withdrawals from traditional IRAs and 401(k)s are generally subject to ordinary income tax unless they come from a Roth account with qualifying conditions met. Penalty exceptions do not eliminate income tax liability unless the distribution is from after-tax contributions or a qualified Roth distribution. Always maintain clear documentation of the reason for a withdrawal and consult with a tax professional or financial advisor to understand both the short- and long-term consequences for your retirement savings.