Life happens and occasionally we run into really tight situations with our money. Generally, we open retirement accounts with the intention of never touching that money again until it's time to withdraw it for post-retirement expenses...but sometimes that's not always the case.

On top of paying income taxes on early distributions from retirement accounts, there is a 10% early withdrawal penalty designed to discourage investors from taking the money out prematurely. HOWEVER, there are some special circumstances that those with retirement accounts should know to make sure they don't have to forfeit that 10% penalty. 

Namely, with Roth IRAs, there some unique features that can allow for early withdrawals that will avoid the 10% penalty. Obviously, caution must be used before making any of these decisions to use this money, but if a situation arises where you need the money and you have no other alternatives, then here are some ways to avoid that fee...

Firstly, the Roth IRA assets must have first been held in the account (which has to have been open) for at least five tax years...then the 10% fee can be avoided on

1)  Inherited IRA Funds - generally with all accounts, you are expected to list a beneficiary for the account in the form of a will substitute. At the time of the individual's death, their beneficiary pay be paid the value of the inherited IRA (no matter what the age of the beneficiary is) as the time of the owner's death.

2) Disability - if the owner of the Roth IRA becomes disabled, they can add to the social security payments by taking money out of their Roth IRA and avoiding the 10% penalty. Specific requirements for meeting the definition of disabled may be necessary to claim this benefit, but the Social Security office usually establishes these.

3) You Reach Age 59 1/2 - retirement usually happens much later in life than age 59, so this would be considered an early age to take a distribution. That being said, there is no penalty for individuals who decide to withdraw from retirement this early, just be sure that this money isn't your only source of income in retirement (it needs to last a long time).

4) Buying a House - this should NOT be used for this purpose, but if it necessary to do, then it is a nice function to have available. Up to $10,000 of first-time home-buyers expenses can be used penalty-free from a Roth IRA. More specifically, a "first-time home-buyer" is considered a taxpayer who has NOT owned a home for the past two years. 

5) Education Tuition Expenses for Children - the penalty can also be avoided in order to pay for qualified education expenses, like college tuition, room and board, for a son or daughter. There are obviously many ways to save for a child's higher education than paying for it out of your retirement account, so please do not open an IRA with the intention of using it to fund your child's education...that's not what it's for. 

6) Series of Payments - if the IRA owner takes a series of substantially equal periodic payments from the IRA, no matter their age, this can avoid the penalty. The idea is that the withdrawals occur so frequently, that the 10% additional penalty doesn't make sense.

7) Medical Expenses - this is probably the one thing that most people do not plan for - unlike buying a home and a child's education. Some individuals find themselves battling cancer or other diseases and injuries much earlier in life than they thought - think women in their 40's being diagnosed with breast cancer. What can they do to pay? Up to a certain amount of money can be taken out early to pay for medical expenses, provided they meet certain criteria. For instance, couples therapy wouldn't be considered a viable medical expense but chemotherapy treatment for cancer patients would be.