Is The 10% Penalty On Early Withdrawal Waived For 2023?

Tax-advantaged retirement accounts like 401(k)s and IRAs can be powerful tools in managing personal finances for most Americans, yet one key condition sometimes dampens enthusiasm: an early withdrawal penalty of 10% that applies if funds are accessed prior to age 59 1/2; designed as an incentive for long-term saving but instead creating financial hardship in certain instances can become a financial burden if needing early withdrawal due to unexpected hardship arises.

Given the recent global pandemic and associated economic fallout, changes were made to provide some flexibility to those forced to access retirement savings prematurely. We must ask whether the 10% early withdrawal penalty continues to be waived until 2023?

Historical Context

To understand what may change in 2023, it’s necessary to look back over recent history. When COVID-19 spread globally in early 2020, economic activities were severely interrupted around the globe and its financial ramifications felt by nations around the globe. In response, in March 2020 the U.S. passed the CARES Act (1) which helped minimize financial repercussions caused by this pandemic.

One key provision of the CARES Act was suspending early withdrawal penalties on certain retirement accounts for distributions up to $100,000 that occurred because of COVID-19 pandemic cases during calendar year 2020. Recalled that these withdrawal amounts are still subjected to tax, but taxpayers could spread out payment over three years.

Legislative Update for 2021-2022.

As economic conditions gradually improved, and vaccination programs continued their roll out, the specific provisions of CARES Act were gradually modified accordingly. For 2021 specifically, no relief package included any waiver of early withdrawal penalties for early withdrawal; similarly in 2022 no such provisions were passed either.

However, it should be noted that exceptions to the 10% penalty have always remained in force throughout this timeframe, such as early withdrawals for first-time home purchases, educational expenses, and medical costs; and Substantially Equal Periodic Payments (SEPPs, 2). Under Rule 72(t), SEPPs permit penalty-free withdrawals provided they occur as part of an equal series over your life expectancy.

Are We Exempting the 10% Early Withdrawal Penalty In 2023?

As of May 2023, the 10% penalty on early withdrawal from retirement accounts remains applicable universally despite expiry of CARES Act provisions at end-2020; no legislative changes exist that would remove or suspend this penalty across-the-board; unlike blanket provisions which existed during pandemic outbreak.

As previously discussed, however, this does not imply that all penalties apply equally – there are several standard exemptions which enable individuals to withdraw early from retirement accounts without incurring an early withdrawal fee or penalty, though any such withdrawal would still typically incur income taxes upon being subjected to income tax liability.

Existence of Exemptions From 10% Penalty

Undergoing further research of the standard exceptions to the 10% penalty can provide insight into when early withdrawals may not incur this charge; especially as they continue to apply up until 2023.

Such exemptions do exist in those situations:

Future Potential for Change

Given the fluid nature of legislative policy in response to shifting economic conditions, changes could occur regarding early withdrawals from retirement accounts. While no legislation has yet been enacted for 2023, future legislative measures might include exceptions or reinstate the blanket waiver in response to specific economic situations.

Individuals should, for the time being, assume that the 10% early withdrawal penalty applies most commonly and that standard exceptions remain intact.


While early withdrawal penalties of 10% may help to deter premature withdrawals and encourage saving for the future, they shouldn’t become an unsurmountable hurdle for people who are facing financial hardship and needing funds quickly for significant life circumstances. The standard exceptions allow for a certain amount of flexibility.

Though CARES Act’s blanket waiver of penalties was intended as a temporary solution to mitigate economic fallout caused by COVID-19 pandemic, its implementation demonstrates how retirement account rules may change according to evolving conditions. Though 10% penalty on early withdrawals was no longer waived as part of 2023’s fiscal rules changes, individuals are advised to monitor legislative developments closely, seek professional financial advice, and make wise choices concerning their retirement savings accounts.

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