What are the withdrawal rules for IRAs?

The cost of taking an early IRA withdrawal

IRAs offer tax advantages that are designed to help you save for retirement, so taking money out early can be costly. The rules depend on the type of IRA and your age. Understanding these rules can help you avoid unexpected costs and make more informed decisions about your retirement savings.

• Traditional IRA—If you take money out before age 59½, you usually owe income taxes on the taxable portion of the withdrawal, plus a 10% early withdrawal penalty. There are some exceptions, including first-time home purchases, qualified higher education expenses, and some medical expenses.
• Roth IRAs—You can withdraw the money you contributed at any time without paying taxes or penalties. But different rules apply to investment earnings. If your withdrawal doesn’t meet IRS requirements, you may owe taxes and a 10% penalty on that portion of the withdrawal.^1,2

Costs of withdrawing early from a traditional IRA

While an IRA can be a valuable source of savings, early withdrawals can be more expensive than many people realize.

You’ll likely owe income taxes

No matter how old you are, some or all of an IRA withdrawal is taxable:

• Money you contributed on a pretax basis, as well as amounts rolled over from a workplace retirement plan, are generally taxable when withdrawn.
• If you made after-tax (non-deductible) contributions, part of your withdrawal may be tax-free, but only if you properly reported those contributions to the IRS and meet certain requirements. Under IRS rules, withdrawals generally include a mix of both after-tax and pretax amounts. The pretax portion and any earnings are generally subject to income tax.

You may also have to pay an early withdrawal penalty

If you're under age 59½, the part of your withdrawal that’s taxable is usually subject to a 10% early withdrawal penalty, in addition to regular income taxes. Some withdrawals qualify for an exception to the penalty, including:

• Paid out after your death or if you become disabled
• Used for qualified higher education expenses, a first-time home purchase ($10,000 lifetime limit), some unreimbursed medical expenses (that exceed 7.5% of your adjusted gross income), or health insurance premiums while unemployed
• Taken by qualified military reservists called to active duty or by certain domestic abuse victims
• Paid as a series of substantially equal payments that continue for at least five years or until you reach age 59½ (whichever comes later)
• Used for qualified birth or adoption expenses, certain personal emergency expenses, or qualified disaster recovery expenses (all subject to IRS limits)

Even if you qualify for one of these exceptions, income taxes may still apply.

The real cost of taking money out early

An early withdrawal can affect more than just your current tax bill. It can also reduce the future growth potential of your retirement savings.

Consider this example:

• Withdraw $10,000 today—You may owe federal income taxes, a 10% early withdrawal penalty, and possibly state income taxes. That means the amount you actually receive could be significantly less than $10,000.
• Keep $10,000 invested—If that money stayed in your IRA and earned a hypothetical 6% annual return, it could potentially grow to about $32,000 before taxes over 20 years. You may still owe taxes when you eventually withdraw the money, but you could potentially be in a lower tax bracket during retirement.

This is a hypothetical mathematical illustration only, and there are no guarantees that the results shown will be achieved or maintained over any period of time. Figures are based on assumptions as set out and are not indicative of any particular investment. They do not take into account fees associated with the investment. Past performance does not guarantee future results. Individual circumstances may vary.

Costs of withdrawing early from a Roth IRA

A Roth IRA works differently from a traditional IRA because you contribute money after paying taxes. Qualified withdrawals of both your contributions and earnings can be completely tax-free in retirement.¹ Because of these tax advantages, the rules for taking money out early are a little more complex.

Understanding the five-year rule²

One factor that affects the taxation of Roth IRA withdrawals is how long you've had a Roth IRA. Generally, the IRS requires that at least five tax years pass from January 1 of the year when you first open and fund a Roth IRA before earnings can be withdrawn tax-free as part of a qualified distribution. For example, if you open and fund your first Roth IRA on November 25, 2026, your five-year period begins on January 1, 2026.

There’s another five-year rule that may apply if you convert money from a traditional IRA to a Roth IRA. When determining if earnings can be withdrawn tax-free as part of a qualified distribution, the five-year period still begins on January 1 of the year you first open and fund a Roth IRA. But each Roth IRA conversion also has its own five-year period for the 10% early withdrawal penalty. If you’re under age 59½ and take out the amounts you converted within five years of that conversion, the taxable portion of that conversion may be subject to the 10% early withdrawal penalty. 

If you inherit a Roth IRA, you generally keep the original owner’s five-year timeline rather than starting a new one.

When you may owe taxes or penalties

Your Roth IRA is designed for tax-free withdrawals if you’re age 59½ and meet the five-year rule requirement. If you take money out before, you may owe taxes and penalties on the earnings. But certain exceptions may apply and eliminate the penalty.

What to think about before taking an early IRA withdrawal

It can be tempting to tap into your IRA when you need extra cash, but it's important to consider the long-term impact first. IRAs offer valuable tax advantages that can help your savings grow over time, and taking money out early may come at a cost.

If you don't qualify for an exception, taxes and penalties could significantly reduce the amount you actually receive. And even if your withdrawal qualifies for an exception, every dollar you take out is a dollar that can no longer benefit from potential tax-advantaged growth and compounding.

Options to consider before tapping into your IRA

If you're facing a large, unexpected expense, it may be worth exploring other options before taking money from your IRA. Depending on your situation, one of these alternatives may make more sense:

• Build your emergency savings account—Your emergency savings can help pay for unexpected expenses. Many financial professionals recommend keeping three to six months’ worth of essential living expenses in a safe, easily accessible account.
• Adjust your budget (at least temporarily)—Review your spending to see whether you can reduce or postpone certain expenses and free up cash in the short term.
• Consider a home equity loan or line of credit—If you own a home and have built up equity, you may be able to borrow against it, often at a lower interest rate than other types of loans.
• Explore a personal loan—You may be able to borrow a lump sum at a competitive interest rate based on your credit rating.
• Use credit cards carefully—While using credit cards can help in a pinch, they often have high interest rates. If you can’t pay off the balance quickly, the cost can add up fast.

Do the math before you take the cash

Life is unpredictable, and you may need to make difficult financial decisions. But before you rush to withdraw money from your IRA, take the time to understand the potential cost. Depending on your circumstances, you could owe taxes and penalties—and also miss out on the opportunity for that money to continue growing for retirement. Finding another way may be better for both your current financial needs and your long-term financial goals.

FAQs

What is the 10% early withdrawal penalty for IRAs?

If you take money from a traditional IRA before age 59½, you'll generally owe income taxes on the taxable portion of the withdrawal plus a 10% early withdrawal penalty unless an exception applies. For traditional IRAs, you usually also owe income taxes on the taxable portion of the withdrawal. For Roth IRAs, taxes and penalties may apply depending on whether the withdrawal consists of contributions, conversion amounts, or earnings, how long you've had the account, and whether you qualify for an exception. The penalty can reduce the money you actually receive.

What are the exceptions to the IRA early withdrawal penalty?

The IRS allows exceptions for certain situations, including: death; disability; qualified higher education expenses; a first-time home purchase; certain medical expenses; health insurance premiums while unemployed; qualified birth or adoption expenses; personal emergency expenses; distributions to victims of domestic abuse; and some disaster-related expenses. Keep in mind that even if the penalty is waived, you may still owe income taxes.

How does the Roth IRA five-year rule affect withdrawals?

The Roth IRA five-year rule helps determine when you can withdraw investment earnings tax-free. In general, at least five tax years must pass from January 1 of the year you first open and fund a Roth IRA before earnings can be withdrawn tax-free as part of a qualified distribution. If you withdraw earnings before meeting the five-year requirement, you may owe taxes on those earnings, even if you're age 59½. The money you contributed to a Roth IRA can generally be withdrawn at any time without taxes or penalties.

Additional rules may apply to money converted from a traditional IRA to a Roth IRA. Each conversion has its own five-year period for purposes of the 10% early withdrawal penalty. Depending on your age and when the conversion occurred, withdrawing converted amounts before the applicable five-year period has been satisfied may result in a 10% early withdrawal penalty, even though the converted amount is generally not subject to income tax again.

Can you take money from your rollover IRA without penalty?

A rollover IRA generally follows the same rules as a traditional IRA. If you're under age 59½, withdrawals are typically subject to income taxes and a 10% early withdrawal penalty unless you qualify for an exception. Once you reach age 59½, you can generally withdraw money without the penalty, although income taxes may still apply.

What are the tax implications of an early IRA withdrawal?

The tax consequences depend on the type of IRA and the nature of the withdrawal. With a traditional IRA, early withdrawals are generally taxed as ordinary income and may also be subject to a 10% early withdrawal penalty. With a Roth IRA, you can usually withdraw your contributions tax-free and penalty-free at any time, but taxes and penalties may apply to investment earnings. Depending on where you live, state income taxes may also apply. Together, taxes and penalties can significantly reduce the amount of money you receive.

1 Distributions from Roth IRAs must be “qualified distributions” for both the contributions and earnings to be treated as tax free. Certain conditions would apply. See your Roth IRA document for more details. All references to tax-free treatment of qualified distributions are intended to refer to the treatment of such distributions at the federal level only. You may want to consult a professional tax advisor regarding any tax issues discussed. 2 A qualified distribution from a Roth IRA is generally a payment made after the IRA owner attains age 59½ (or after death or disability) and after the Roth IRA has been established for at least five years. In general, in applying the five-year rule, count from January 1 of the year the first contribution was made to the Roth IRA. Additional five-year rules may apply to Roth IRA conversion amounts. IRA owners should contact their financial or tax advisor for specific details on the applicable five-year rules and their specific circumstances.