There are many ways to use your IRA funds prior to age 59 1/2 and avoid the 10% penalty for early withdrawal. While it’s not usually a good idea to tap IRA funds until you retire, you can often do so without fear of paying the tax penalty. Here’s how:

1. First Time Home Buyer.
You can take up to $10,000 from your IRA to help buy or build a primary home for yourself, a child, a grandchild or other offspring. You can even use the funds if you owned a home previously as long as you or your spouse did not own a home in the prior two years.

2. Costs for Higher Education.
You can use unlimited IRA funds to pay for a college education for yourself, your spouse, a child or a grandchild and avoid the 10% withdrawal penalty. The funds can be used for a variety of college related costs (tuition, books, room & board etc.). The withdrawals are penalty free as long as the student is at a qualified institution meets the enrollment tests and uses the funds for qualified expenses.

3. Medical Expenses.
Use IRA funds to pay for high medical expenses over 7.5% of your adjusted gross income. You can avoid the penalty even if you did not itemize deductions on your tax return.

4. Unemployed Health Insurance.
If you have been unemployed for 12 weeks or more, you can use your IRA penalty free to pay for medical insurance premiums.

5. Substantially Equal Payments.
If you take substantially equal payments from an IRA for at least five years AND UNTIL YOU REACH AGE 59 1/2 you can avoid the 10% penalty. But be careful here, if the payments are not structured correctly you could be hit with the penalty on all your withdrawals. Some of the qualifications include;

• payouts must be taken for at least five years and must not be modified or stopped until after age 59 1/2.
• you must use an approved method to determine the withdrawal amounts.

6. Other Penalty Free Withdrawal Events.
Death, disability or an IRS levy to pay prior tax obligations.

A word of caution: If you withdraw funds from an IRA you must still pay income tax that is due on the withdrawal amounts.

While an early withdrawal from an Individual Retirement Account is not usually a recommended tax planning strategy, if you must do so, try to do it without the burden of the IRS’ 10% penalty.