Volume 16: The Lockshield Letter
Mar 31, 2026
Episode 16: Early Withdrawal Penalty Exceptions
Early Withdrawals: What You Need to Know
Episode Description
In this episode of the LSP Podcast, we explore the key exceptions to the 10% early withdrawal penalty on retirement accounts. Typically, withdrawing funds before age 59½ triggers not only ordinary income taxes but also an additional 10% penalty—but there are important situations where that penalty can be avoided.
We break down several of the most common exceptions, including 72(t) distributions—also known as Substantially Equal Periodic Payments—which allow penalty-free withdrawals as long as you follow strict rules, including taking distributions for at least five years or until age 59½, whichever is longer.
We also discuss the Rule of 55, which applies if you separate from service in or after the year you turn 55, as well as other qualifying scenarios such as certain medical expenses, higher education costs, and first-time home purchases.
Understanding these exceptions can help you make more informed decisions and avoid costly mistakes when accessing your retirement funds early.
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