My client took an early withdrawal from her traditional IRA last year in order to cover expenses for a vacant rental property that she owns. She is employed as a teacher and therefore, does not get a paycheck during the summer months either. It was during that time that she took the distribution. She contributed to a retirement plan through her work for the entire year (not including the summer, of course). Anyway, do you think she could qualify for the hardship exemption or exception on this withdrawal to avoid the 10% penalty? Thanks.

no I do not think so; penalty-free does not mean tax-free. All traditional IRA withdrawals require that you pay taxes at ordinary income rates. Contributions to a Roth IRA can be taken out at any time, and its earnings may be withdrawn penalty and tax-free after five years. In certain situations, a traditional IRA offers penalty-free withdrawals even when an employer-sponsored plan does not; employer plans don't have to provide for hardship withdrawals at all. Many do, but they may permit hardship withdrawals only in certain situations -- for instance, for medical or funeral expenses, but not for housing or education purposes.These circumstances qualify for IRS-sanctioned, penalty-free hardship withdrawals.