The Internal Revenue Service allows investors to withdraw funds early from their Individual Retirement Arrangement accounts without penalty when certain qualified hardships arise. Otherwise, early withdrawals from IRA accounts, including both Roth and traditional IRAs, typically come with a 10 percent penalty tax, unless the withdrawals are part of equal distributions scheduled over the course of the owner's life. That penalty is charged in addition to the ordinary income tax that applies to early withdrawals that are not qualified.
If the owner of an IRA account dies, then the heirs have the option of taking distributions from the account without paying a 10-percent penalty tax on the withdrawals. This allowance exists whether the IRA is attached to a particular beneficiary or is an asset that is part of a larger estate. Another clear hardship condition is when the owner of an IRA is afflicted with a physical or mental disability. For a penalty-free withdrawal, the account owner must produce a physician's opinion that the disability is severe enough that it precludes any "substantial gainful activity," according to the IRS, and likely will last indefinitely or a long time or result in death.
The IRS allows for hardship withdrawals related to the costs of buying, building or rebuilding a new home and paying for college. Hardship withdrawals without penalty for house payments are limited to first-time homeowners and up to $10,000 of the distributions made for house expenses. Higher education hardship withdrawals may be be made for college expenses for the account owner, the owner's spouse, or the owner's or spouse's children or grandchildren. Eligible expenses include tuition, fees, books, supplies and required equipment.
Some medical expenses allow for qualified IRA hardship withdrawals. One acceptable circumstance is when the money is needed to pay medical insurance premiums when the owner of the IRA is unemployed. In this case, the funds withdrawn must not exceed the cost of the premiums or the penalty will apply. Also, the account owner must receive unemployment compensation for at least 12 straight weeks. Another medical event that can enable a penalty-free hardship withdrawal is when the funds are needed to pay for medical expenses that were not reimbursed in any way. The cost of these expenses must amount to more than 7.5 percent of the account owner's adjusted gross income.
The IRS can be directly involved in one qualified early distribution due to hardship. If the account owner owes federal taxes, the IRS can levy funds from an IRA account. The distributions used to pay those tax obligations are not subject to the tax penalty. The hardship of serving in the military reserves also can trigger qualified early withdrawals. For reservists who served an active period of more than 179 days after Sept. 11, 2001, qualified early withdrawals are allowed for distributions that were made between the time that the reservist received a call to active duty and the last day of the active duty period.