IRA Hardship Rules

Because IRAs were created as a vehicle for retirement savings, it's not surprising that IRA rules include a tax penalty if you take the money out before you reach retirement age. But the rules also leave some wiggle room for you to take penalty-free distributions in certain specific situations. Special-circumstances or hardship distributions are still taxed as ordinary income, but you aren't required to pay the normal 10 percent tax penalty for an early distribution.

Medical Costs

Any medical expenses exceeding 7.5 percent of your adjusted gross income can be paid with an IRA distribution. To calculate the penalty-free amount, add up the medical expenses allowable in figuring a medical expense deduction on Schedule A of your tax return, even if you don't plan to itemize deductions. From that total, subtract 7.5 percent of your adjusted gross income. An IRA distribution up to the resulting difference would not be penalized.

Medical Insurance

To qualify for a penalty-free IRA distribution to pay for you or your family's medical insurance, you first must have claimed unemployment compensation for 12 straight weeks. The distribution cannot exceed what you paid for the insurance, and it must be taken either the year you received unemployment benefits or the following year. You also must take the distribution no later than 60 days after you started a new job.


When a doctor determines that a disability can be expected to result in your death or will keep you unemployed for a long or indefinite period, any IRA distribution will not be penalized.

Education Costs

Penalty-free IRA withdrawals can be used to pay for tuition, fees, books and supplies needed for post-secondary education, including colleges and technical schools. Room and board paid to qualified higher education institutions, as well as any special needs services, also meet eligibility requirements. However, you must document your expenses, and the penalty-free withdrawals can't be more than you paid after you subtract government grants, employer-paid assistance, tax-free scholarships or fellowships, tax-free savings distributions or any other tax-free assistance except for gifts or inheritances.

Buying a Home

You can withdraw up to $10,000 from your IRA to buy, build or rebuild a first home. Actually, if you're married, both you and your spouse can take out $10,000 penalty-free, but only if neither of you has had an ownership interest in a primary residence in the last two years. If you don't use the money – including for down payment and routine settlement, financing or closing costs – within 120 days, then you must return it to the IRA to avoid the tax penalty. If you're buying, the acquisition date is when you sign the binding contract; if you're building or rebuilding, it's the day construction starts.

Qualified Reservist Distributions

You can take penalty-free distributions if you're a military reserve member who gets called to active duty for more than 179 days. The distribution must be taken no earlier than the date of the call to active duty and no later than the last active-duty date. You also are allowed to replace any withdrawals as an after-tax contribution for up to two years after your active duty ends. If you paid a penalty on a qualified reservist distribution, you can recapture the penalty by filing an amended return.

IRS Exception

If the IRS slaps you with a levy on an overdue tax bill, you at least won't have to pay an early-distribution penalty on the amount you take out to satisfy the levy.