10 Ways to Tap Your IRA Early Without Penalty

Military service. Members of the military's reserves can take distributions if they were ordered or called to active duty after Sept. 11, 2001, for a period of more than 179 days or for an indefinite period. The distribution must be made during the active duty period to avoid the penalty. Qualifying reservists include the army, naval, marine corps, air force, and coast guard reserves.

An inherited IRA. If you are the beneficiary of a deceased IRA owner, you don't need to pay a penalty on withdrawals before age 59½. "If you lose a spouse and you are under 59½, you definitely do not want to roll that IRA into your own name," says Hosler. "If you take over an inherited IRA, then you can pull any amount out and it is not subject to the penalty."

Natural disasters. Legislation is occasionally passed that allows for special retirement account distributions when a hurricane or other natural disaster is especially devastating. For example, the Katrina Emergency Tax Relief Act of 2005 allowed individuals who suffered an economic loss as a result of that hurricane in four states to avoid the 10 percent tax on early distributions and pay the income tax due on the withdrawal over a three-year period.

[See The 10 Most Difficult Retirement Decisions.]

Convert to a Roth IRA. Roth IRAs make it easier to access your money before you reach retirement. Roth IRA withdrawals before age 59½ result in a 10 percent early withdrawal penalty only on the portion of the withdrawal that comes from earnings. And since your contributions were made with after-tax dollars, no additional income tax will be due. But you need to deposit or convert your retirement savings to a Roth IRA well in advance of when you will need it in order to avoid the penalty. "Before you take money out of your Roth IRA, you have to wait five years in order to be exempt from the penalty," says Ross Hunt, a certified financial planner and co-founder of Ross and Mary Hunt, Inc. in Murrieta, Calif. A separate five-year waiting period applies to each Roth IRA conversion and rollover.

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