As you start building up the balance in your Individual Retirement Account (IRA), it may be tempting to tap it for things you want or need today. After all, it’s your money, and your post-work life may still be decades away. But withdrawing money from an IRA will cost you—both today and when you’re ready to retire later.

That’s because, in most cases, you’ll have to pay a penalty for early withdrawal from your IRA. And since the money you take out will no longer be growing in your retirement nest egg, you’ll have less available when you actually do stop working. (Please keep in mind that Acorns does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.)

What qualifies as an early withdrawal?

Because IRAs are set up solely as retirement accounts, the funds in them are not intended to be used until you reach retirement age—or close. The IRA sets this age at 59 ½. So withdrawing anything from your IRA before you reach age 59 ½ qualifies as an early withdrawal and usually incurs penalty payments.

However, just because you can withdraw from your IRA at age 59 ½ doesn’t mean you have to. You’re required to start taking distributions from a traditional IRA after you reach age 70 ½, but Roth IRAs have no mandatory distribution requirements.

What is the penalty for early IRA withdrawals?

The amount you’ll be charged for cashing out early can vary. It all depends on which type of IRA you have.

Traditional IRA: When you make a contribution to a traditional IRA, you can deduct the amount from your taxable income during the year you made the contribution. Lowering your current year taxes is one of the benefits of contributing to a traditional IRA.

But that means when you make a withdrawal from that IRA, you’ll have to pay taxes on the funds you withdraw. (You’ll also pay income taxes on this money once you start taking distributions in retirement, which the IRS says is anytime after age 59 ½.)

When you take out any cash you reach that milestone, and you’ll owe regular income taxes. Plus, in most cases, a 10 percent penalty. So if you withdraw $10,000, you’ll pay $1,000 in penalties. And if you’re in, say, a 25 percent tax bracket, you’ll also pay $2,500 in taxes. That leaves you with $6,500.

SEP IRA: Simplified Employee Pension (SEP) IRAs—the account for side giggers and other self-employed people—works in much the same way: Any money withdrawn before age 59 ½ is subject to regular income tax, as well as a 10 percent penalty.

Roth IRA: A major perk of Roth IRAs is that because you’ve already paid taxes on the money you contribute today, you don’t pay taxes on what you withdraw in retirement. That means you can access your contributions anytime without penalty. However, if you tap any investment earnings (aka the market returns your invested money has generated) before you’re 59 ½—or before you’ve had your account open for at least five years—you’ll owe income tax, plus the 10-percent penalty.

Is there any way around these penalties?

The easiest way to avoid penalties is to leave the money in your IRA alone until you reach the age of 59 ½. That’s the age when you can make withdrawals without incurring any extra penalties or tax liability.

However, there are a few exceptions to the early withdrawal rules—but you have to qualify. Please also keep in mind that the IRS can always deny the exceptions and determine that they do not qualify in certain instances. Always consult with your tax professional for guidance. The IRS may grant you an exception and allow you to avoid the penalties on early withdrawals if you’re using the money for one of these reasons:

  • To buy, build or rebuild a first home. In this case, you can only withdraw up to $10,000 without penalty.

  • You have a disability that requires you to need the funds, and your doctor is willing to verify that.

  • To pay medical expenses that are not reimbursed by health insurance and exceed 10 percent of your taxable income.

  • To pay for health insurance if you lose your job and collect unemployment compensation for 12 consecutive weeks.

  • To pay for college, including tuition, fees, books and supplies. If you (or your dependent who is attending college) are at least a half-time student, the funds can also cover room and board. But keep in mind that IRA distributions count as taxable income, so they could affect your eligibility for financial aid.

  • If you are a member of the military reserves, and you take an IRA distribution during a period of active duty of more than 179 days, you will not have to pay a penalty.

  • If you inherit a traditional IRA and you’re younger than 59 ½, you can take withdrawals without a penalty, but you’ll have to pay income tax on the withdrawals.

Keep in mind that the IRS can always deny the exceptions and determine that you do not qualify in certain instances. Always consult your tax professional for guidance. And be aware that even if you avoid paying the penalty, you’ll still owe income taxes on money taken from a traditional or SEP IRA.

How do early withdrawals affect my retirement income?

Your retirement income is based on the growth of your savings and investments during your working years. People who start investing early and keep it up are able to earn the most, thanks to compounding returns (when your returns earn returns, and so on).

When you cash out early from your IRA, you are forfeiting any gains that money might have generated over time. As your returns keep earning returns, that can add up to a lot.

Also, withdrawing money from any account meant for retirement means you’ll need to double up on savings to get back to where you started. And the time spent restocking your IRA is time lost in earning on your investments.

In some cases, early withdrawals from an IRA are necessary and may even make sense, especially if you can avoid the 10-percent penalty. But cashing out early from a retirement account should always be viewed as a last resort, as you’re essentially taking from your own living expenses later in life to fund your current expenses.

Investing involves risk including loss of principal. This article contains the current opinions of the author, but not necessarily those of Acorns. Such opinions are subject to change without notice. This article has been distributed for educational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Acorns does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.