We’ve covered a lot of ground on how you can access your IRA funds in this blog. Over time I have developed the following list of the ways to withdraw IRA funds without penalty. The penalty for early withdrawal of IRA funds is 10% of the withdrawal, unless one of the exceptions is met. This list is for Traditional IRAs only. For a similar list regarding early withdrawal from a 401k plan, follow early withdrawal from a 401k.
It is key to note that, although these exceptions allow the distribution of funds without triggering the 10% penalty, in most cases the account owner is still liable for the ordinary income tax on distributions. Consult your tax advisor for additional information.
19 Ways to Withdraw IRA Funds Without Penalty
We’ll start with the obvious:
1. Normal – Begin after age 59½
2. Before Tax Due – Withdraw annual contributions before the due date of your tax return – an example would be to withdraw your 2017 contributions (and any associated growth) before April 15, 2018.
3. Excess Contributions – Withdraw excess contributions before the due date of your tax return – if you discovered that you had contributed more than allowed (due to income limits or error) you are allowed to remove the excess and any associated growth before the tax return is due for the year.
4. Required Minimum Distributions – technically this one is covered by #1 above for most circumstances, but it also covers the case where RMD is required of a person who has inherited an IRA, regardless of age.
Now we’ll move into some of the not-so-obvious methods, starting with SOSEPP.
Series Of Substantially Equal Periodic Payments
This is the classic Section 72(t) method for withdrawing funds without penalty. Essentially you agree to continue taking the same amount from your IRA for the greater of five years or until you reach age 59½. There are three methods of SOSEPP:
