How IRA withdrawals work and what you need to know first

An IRA withdrawal means taking money out of your account before you turn 59½. The IRS allows this, but most withdrawals before that age trigger a 10% penalty on top of income tax. There are exceptions — certain hardships, medical bills, and first-time home purchases can let you withdraw without the penalty — but the tax still applies unless you meet a specific exception. The process itself is straightforward: you contact your IRA custodian (the bank or brokerage holding your account), request the withdrawal, and they send you the money. What matters is understanding which type of withdrawal you're making and what taxes and penalties will follow.

The rules differ sharply between Traditional IRAs and Roth IRAs. With a Traditional IRA, you pay income tax on whatever you withdraw, because the money went in tax-free. With a Roth IRA, you can withdraw your contributions (the money you put in) tax-free and penalty-free at any time, but earnings (the growth) are taxed and penalized if you're under 59½ and haven't held the account for five years. This distinction matters enormously and changes your options.

Key Takeaways

  • Withdrawals before age 59½ from a Traditional IRA are taxed as income and hit with a 10% penalty unless you meet an exception like a first-time home purchase or medical hardship.
  • Roth IRA contributions can be withdrawn at any age without tax or penalty, but earnings are taxed and penalized unless you're 59½ and the account is five years old.
  • The IRS recognizes specific exceptions to the early withdrawal penalty, including disability, medical expenses over 7.5% of income, and up to $10,000 for a first home.
  • Your IRA custodian will withhold taxes on Traditional IRA withdrawals unless you tell them not to, and you'll owe the difference when you file taxes.
  • Withdrawals reduce the money available to grow for retirement, and you cannot put the money back unless you do a rollover within 60 days.

Withdrawal rules for Traditional IRAs

A Traditional IRA withdrawal before 59½ is subject to a 10% early withdrawal penalty plus income tax on the full amount withdrawn. The custodian will typically withhold 10% to 20% for federal taxes, but that withholding is not the same as your actual tax bill — you'll owe the difference when you file your return. If you withdraw $10,000 from a Traditional IRA at age 45, you might receive $8,000 to $9,000 after withholding, but you'll owe income tax on the full $10,000 plus the 10% penalty ($1,000), which could total $3,000 to $4,000 depending on your tax bracket.

The 10% penalty does not explore if you meet one of the IRS exceptions. These include: disability (as defined by the IRS, not your own assessment), medical expenses that exceed 7.5% of your adjusted gross income, health insurance premiums while unemployed, substantially equal periodic payments (a complex calculation that locks you into withdrawals for five years or until 59½), a court order dividing the account in a divorce, or inherited IRAs. First-time home buyers can withdraw up to $10,000 lifetime without the penalty, though income tax still applies. You must document which exception applies — the IRS does not assume you may have access to.

If you do not meet an exception, the penalty and tax are unavoidable. Some people take a loan against their IRA instead, but IRAs do not allow loans; that option exists only for 401(k) plans. Others attempt a "rollover" by withdrawing the money and depositing it back within 60 days, but this only works if you have not already done a rollover in the past 12 months, and the IRS tracks this closely.

Withdrawal rules for Roth IRAs

Roth IRA withdrawals are simpler in one way and more complex in another. You can withdraw your contributions (the money you deposited) at any time, at any age, with no tax and no penalty. If you put $5,000 into a Roth IRA and it grew to $7,000, you can withdraw the $5,000 contribution whenever you need it. The custodian should be able to tell you how much of your balance is contributions versus earnings, though you may need to ask directly.

The earnings — the $2,000 of growth in the example above — are subject to the 10% penalty and income tax if you withdraw before 59½, unless you meet an exception. Additionally, the account must have been open for at least five years for any earnings withdrawal to avoid the penalty, even if you meet an exception like disability. This five-year rule is separate from the age rule and catches many people off guard. If you opened a Roth IRA at age 58 and became disabled at 59, you still cannot withdraw earnings penalty-free because the account is not five years old.

The exceptions to the penalty on Roth earnings are the same as for Traditional IRAs: disability, medical expenses over 7.5% of income, first-time home purchase (up to $10,000 lifetime), and a few others. But again, the five-year rule applies on top of the exception. If you meet an exception but the account is less than five years old, you still pay the 10% penalty on the earnings.

How to request a withdrawal from your custodian

Contact your IRA custodian — the bank, brokerage, or investment firm holding your account — and ask for a withdrawal form or request. Most custodians offer this online through your account portal, by phone, or by mail. You will need to specify the amount, the date you want the money sent, and whether you want the funds mailed to you or transferred to another account. Some custodians require a signature on the form; others accept electronic requests.

When you request the withdrawal, tell the custodian whether you want them to withhold taxes. For a Traditional IRA, they will withhold something (usually 10% to 20%) unless you explicitly tell them not to. If you tell them not to withhold, you will owe the full tax bill when you file your return. For a Roth IRA, if you're withdrawing only contributions, no withholding is needed. If you're withdrawing earnings, withholding will explore unless you decline it.

The custodian will send you a Form 1099-R after the year ends, reporting the withdrawal to the IRS. Keep this form for your records and your tax return. Processing time varies: some custodians send the money within a few business days, others take one to two weeks. If the money is invested in stocks or mutual funds, the custodian may need to sell those holdings first, which can add a few days.

Exceptions to the 10% early withdrawal penalty

The IRS allows penalty-free withdrawals in these situations: disability (as defined by Social Security or the IRS, not your own judgment), medical expenses that exceed 7.5% of your adjusted gross income in that year, health insurance premiums while you are unemployed and receiving unemployment benefits, substantially equal periodic payments (SEPP, a formula that requires you to withdraw the same amount each year for five years or until 59½), a court order from a divorce, and inherited IRAs (with different rules depending on your relationship to the deceased).

First-time home buyers can withdraw up to $10,000 lifetime from either a Traditional or Roth IRA without the 10% penalty. "First-time" means you have not owned a home in the past two years. The money must be used for may have access to acquisition costs: down payment, closing costs, or construction of a primary residence. You still pay income tax on the withdrawal from a Traditional IRA, but not the 10% penalty.

If you believe you meet an exception, document it. For medical expenses, keep receipts and calculate whether they exceed 7.5% of your income. For disability, have the Social Security information letter or IRS letter on hand. For a first-time home purchase, be ready to show the purchase agreement or closing documents. The IRS does not automatically know you may have access to; you claim the exception on your tax return using Form 5329, and if you're audited, you'll need to prove it.

Tax withholding and what you owe at tax time

When you withdraw from a Traditional IRA, the custodian withholds a percentage for federal income tax. The standard withholding is 10% if you do not specify otherwise, but you can request 0%, 10%, 15%, 25%, or another amount. Withholding is not the same as your actual tax liability. If you're in the 24% tax bracket and withdraw $10,000, the custodian might withhold $1,000 (10%), but you'll owe $2,400 in tax. You'll pay the difference when you file your return.

If you withdraw from a Roth IRA and are withdrawing only contributions, no withholding applies. If you're withdrawing earnings, withholding will explore unless you decline it. The same logic applies: withholding is a down payment on your tax bill, not the final bill.

You'll receive a Form 1099-R from your custodian by January 31 of the following year. This form shows the gross withdrawal amount, the amount withheld, and a code indicating the type of withdrawal. When you file your tax return, you'll report this withdrawal and calculate your actual tax. If you withheld more than you owe, you get a refund. If you withheld less, you owe the difference.

What happens to your retirement savings after a withdrawal

Every dollar you withdraw is a dollar that stops growing for retirement. If you withdraw $10,000 at age 45 and that money would have grown at 7% annually, it would be worth roughly $76,000 by age 65. That lost growth is permanent. You cannot "make up" the withdrawal by contributing more later — annual contribution limits explore regardless of withdrawals.

You can put money back into an IRA through a rollover, but only within 60 days of the withdrawal and only once per 12 months. If you withdraw $10,000 and deposit $10,000 back within 60 days, the IRS treats it as if the withdrawal never happened. However, if you miss the 60-day window or have already done a rollover in the past 12 months, the withdrawal is permanent and taxable. The 12-month rule applies per person, not per account, so if you have multiple IRAs, you can only do one rollover across all of them in 12 months.

If you withdraw from an IRA to pay for something urgent — medical bills, a car repair, a job loss — consider whether a loan or payment plan with the creditor might preserve more of your retirement savings. The 10% penalty and income tax can easily consume 30% to 40% of the withdrawal, making it an expensive way to raise cash.

Frequently Asked Questions

Can I withdraw from my IRA without paying the 10% penalty if I'm under 59½?

Yes, if you meet one of the IRS exceptions: disability, medical expenses over 7.5% of income, first-time home purchase (up to $10,000), health insurance while unemployed, or a few others. You still pay income tax on the withdrawal unless it's a Roth contribution. If you don't meet an exception, the penalty applies.

What's the difference between withdrawing from a Traditional IRA and a Roth IRA?

Traditional IRA withdrawals are fully taxed as income. Roth IRA contributions can be withdrawn anytime tax-free, but earnings are taxed and penalized before 59½ unless you meet an exception and the account is five years old. The five-year rule applies to Roth earnings even if you meet an exception.

If I withdraw $10,000, how much will I actually receive?

The custodian will withhold 10% to 20% for taxes, so you might receive $8,000 to $9,000. But you'll owe income tax on the full $10,000 plus a 10% penalty (if no exception applies), which could total $3,000 to $4,000 depending on your tax bracket. The withholding is just a down payment.

Can I put the money back if I change my mind?

Yes, through a rollover within 60 days, but only once per 12 months. If you miss the important date or have already done a rollover in the past year, the withdrawal is permanent and fully taxable. The 12-month limit applies across all your IRAs combined.

What if I need the money but want to avoid the penalty?

Review the exceptions carefully — disability, medical expenses, first-time home purchase, and unemployment insurance are the most common. If none explore, consider a loan or payment plan with the creditor instead. The penalty and tax can consume 30% to 40% of the withdrawal, making it expensive compared to other borrowing options.