IRAs and 401(k)s can be utilized to pay big medical expenses without penalty. The funds must be used for medical costs of the taxpayer, spouse or dependent. The payout must cover expenses paid in the year of the withdrawal. And only medicals that exceed 10% of adjusted gross income (7.5% for 2018) qualify for the exception. The unemployed can use IRA funds to buy health insurance in some cases. Payees must be on unemployment for 12 weeks. Self-employed individuals also qualify. Three other exceptions to the penalty don’t allow much planning: Death or permanent disability of the account owner or IRS levy on retirement funds. IRS has a helpful chart listing all withdrawals that escape the 10% penalty. It describes the exceptions, notes those that apply to 401(k)s and those that apply to IRAs, and lists the section of the income tax code where the exception appears. Go to to view the complete list. Note there is no general hardship exception to the 10% tax on early payouts.