A. You are correct that if you are under 59.5 years old, you will have to pay 10% penalty for any money you withdraw from retirement accounts.
But if you face one of the following 6 situations, IRS allows you to take money out of IRA account without any penalty.
1. Pay medical bill. If you have a huge medical bill (exceeding 10% of your AGI), you can take money out of retirement account (must happen in the same year as the medical bill happens) penalty free.
2. Permanently disabled. In this case, you don't have to wait till age 59.5 to start withdrawing money from IRA account penalty free, the evidence is simple - start receiving disability insurance benefits from social security bureau.
3. Pay medical insurance bill. If you have been unemployed for over 12 weeks, you can take money out of IRA to pay health insurance bill, penalty free.
4. You died. In this case, your beneficiary can take money out of your retirement account, but IRS has some strict limitations for this situation.
5. Down payment of a house. If you have not owned a property in the past 2 years, you can take some money out of IRA account to pay for down payment. The limit is $10,000 lifetime. Note, this applies to IRA only, not 401(k) account.
6. College education expenses. You can take money out of IRA account, but not 401(k) account, to pay for higher education expenses, this could be for yourself, your spouse, children, grandchildren, or even direct relatives.