Is the 10% Penalty on Early Withdrawal Waiver For 2022?

Is the 10 penalty on early withdrawal waived for 2022

Under normal circumstances, withdrawing funds from traditional Individual Retirement Accounts (IRAs) or employer-provided plans before age 59 1/2 will incur a 10% penalty; however, under special circumstances you can make withdrawals without the penalty being assessed.

In this article, we will outline several common scenarios that allow for penalty-free withdrawals.


Ordinarily, when taking a distribution from your pretax retirement account, income tax must be paid immediately. Thanks to the CARES Act, this can now be spread out over three years instead.

COVID-19 withdrawals may be available through your 401(k), 403(b), 457f plans or traditional IRA. To qualify, you must have experienced adverse financial repercussions from the pandemic; such as postponing job starts or being quarantined or furloughed from work; losing hours at work, experiencing reduced self-employment income or having your business close due to lack of child care availability.

The Internal Revenue Service recently issued Notice 2020-50 which provides guidance for withdrawing funds and reporting options under CARES Act. You can find further information at IRS website and it also gives lenders greater leeway when dealing with borrowers who have difficulty paying their bills.


If your finances were affected by COVID-19 and you live in an area declared a COVID-19 disaster relief zone, certain relief provisions may apply. These may include suspending required minimum distributions from IRAs and employer plans; raising loan limits; and extending repayment periods on loans.

However, should you lose your job voluntarily or involuntarily due to COVID-19 pandemic, any withdrawals and loan repayments may incur a 10% penalty fee. Therefore it is especially important that before taking a distribution you carefully assess both its costs and benefits before doing so.


Savers who withdraw funds from employer-provided retirement accounts (such as 401(k)s or traditional individual retirement accounts) before reaching age 59 1/2 must usually pay a 10% penalty tax; however, withdrawals made as part of COVID-19 hardship withdrawals do not fall under this rule.

Hardship withdrawals allow individuals to tap their retirement savings when experiencing financial distress, but must abide by the terms of their plan, which may limit how much can be taken out, for instance medical bills or repairs after natural disaster.

Some 401(k) plans provide their own list of hardship withdrawals, which often includes funeral and education expenses. Even if you do qualify, experts advise only using it as a last resort because doing so will diminish your retirement savings over time and cost more in the end. It’s therefore crucial to carefully consider all available alternatives before tapping your retirement funds.


Rollovers can help make retirement savings simpler by moving assets between plans or IRAs, but should only be undertaken after careful consideration. Early withdrawal can have serious repercussions – particularly if markets are experiencing volatility when you withdraw funds; you could miss out on participation in any subsequent market rebound and limit growth potential in the process.

As it’s essential to be aware of all of the rules and exceptions surrounding early withdrawal penalties from 401(k), it is wise to seek professional advice prior to making decisions about your retirement account. Any mishandled rollover could have severe tax ramifications that cost a great deal of money – for example if an employer gives out distributions that require indirect rollovers with 60 day deadlines not met could generate significant income tax bills for you and/or trigger additional income taxes due on them.

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