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Just to make it more confusing, there are several instances in which you’re allowed to take money out of your IRA before age 59.5. You won’t incur a penalty if you use your IRA money to pay for the following:

  • College expenses for you, your spouse, your children or grandchildren.
  • Medical expenses greater than 7.5% of your adjusted gross income.
  • A first-time home purchase (up to $10,000).
  • A sudden disability.

If you put money into your IRA but then decide you need it back, you can generally "take back" one contribution made to a traditional IRA without paying tax, as long as you do it before the tax filing deadline of that year and do not deduct the contribution from your taxes.

You can also withdraw money from a traditional IRA and avoid paying the 10% penalty if you roll the money over into another qualified retirement account (such as a Roth IRA) within 60 days. But then you wouldn't actually be able to spend it.

Really desperate for cash? Well, if so, it is possible to take money out of your traditional IRA in what's called "substantially equal periodic payments." Here's how it works: The IRS will determine what amount you can receive each year based on your life expectancy. That's the amount you must withdraw each year.

Sound too good to be true? Not when you consider the substantial risks. Once you start substantially equal periodic payments, you can't stop the payments until you're 59½ or five years have passed, whichever is longer. So there's no changing your mind. If you change or stop these withdrawals at any time, you'll get hit with that 10% penalty - applied retroactively from the time you first began receiving payments. So it's really not a great idea if you're under 50. Even if you are over 50, you'll be eating away at your retirement nest egg, rather than building it up. That means you're likely to come up short when you actually do retire.