(This article originally appeared in the March 2025 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

An individual retirement account (IRA) allows you to save for retirement with tax-free or tax-deferred growth. They are intended to be long-term accounts. If you tap into them before age 59½, you will incur a 10% early withdrawal penalty in addition to paying income taxes on the withdrawal.

However, a few situations, known as hardship withdrawals, might allow you to take money from these accounts early without incurring the penalty, although you might still be subject to income tax.

These hardship withdrawals, defined by the IRS as being made because of an “immediate and heavy financial need,” include scenarios like birth or adoption of a child, distributions to certain military reservists called to active duty, unreimbursed medical expenses that exceed 7.5% of adjusted gross income, financial emergency expenses (up to $1,000 once per year), qualified education expenses, and first-time home purchases up to $10,000.

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Hardship withdrawals from an IRA differ in several ways from those that can be taken from an employer-sponsored plan like the Thrift Savings Plan (TSP) or a 401(k). IRAs generally offer more hardship withdrawal options. For example, employer-sponsored plans do not count medical expenses, education expenses, or first home purchases as hardships.

Unlike 401(k)s or the TSP, IRAs do not allow participants to take a loan. Once the money is withdrawn, there is no option to pay it back the way most employer-sponsored plans allow. Less money in the account lowers the earning potential of your IRA. Withdrawal from your IRA should be the last resort when you have exhausted all other options.

More Options

If you have a Roth IRA, you can withdraw contributions at any time without tax or penalty since those contributions were made post-tax. However, withdrawal of earnings from a Roth IRA when you are under 59½ would trigger a 10% penalty plus taxes. The penalty could potentially be avoided if you have a hardship withdrawal.

If you’ve had the Roth IRA for five or more years and withdraw earnings, the taxes could be avoided if you use the withdrawal for a first-time home purchase or become disabled.

If you have an employer-sponsored retirement plan, you could potentially borrow money from it and pay it back via payroll deduction. You would need to check with your employer first, since not all plans permit loans.

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You could also look at a Substantially Equal Periodic Payment Plan, or SEPP, for distributing funds from your IRA or other retirement plan (except from your current employer) and avoid incurring early withdrawal penalties. Funds are withdrawn through annual distributions for five years or until the account holder turns 59½, whichever happens later.

Income tax must still be paid on withdrawals. The amount you withdraw is determined by the IRS.

SEPP plans are best suited to those who need a steady stream of income. If you quit the plan early, you’ll pay all the penalties that were avoided plus interest.

Taking an early withdrawal from your retirement account should not be taken lightly and all consequences should be considered, said Adrienne Ross, CFP®, ChFC®, AFC®, fiduciary financial advisor at Clear Insight Wealth Management.

The tax implications and potential penalties “are the obvious costs,” Ross said. “The less obvious cost is the lost opportunity for growth when you withdraw from your IRAs. Once you take a withdrawal and keep the money out of the account for more than 60 days, your chance to put the money back is gone forever.”