How can a taxpayer make a pension withdrawal & avoid a 10% early withdrawal penalty?
There are some exceptions to the penalties for withdrawal prior to taxpayer reaching age 59 1/2. These are as follows:
1. A distribution thats made due to a permanent or total disability.
2. A distribution thats made due to death of taxpayer.
3. A distribution that is made to someone else, usually an ex-spouse as part of the a qualified domestic relations order (QDRO), ie from a divorce agreement.
4. A distribution is made due to an IRS levy.
5. A distribution is made to pay for college education or higher education expenses for either the taxpayer, or spouse or their children.
6. A distribution that is made as part of a retirement plan that makes equal periodic payments over the life of the taxpayer. There are some rules pertaining to this exception and they have to be strictly adhered to.
7. A distribution is made towards the purchase of taxpayers first home!
8. A distribution is made to pay for medical insurance expenses paid for taxpayer and spouse and dependents.
9.A distribution is made to pay for taxpayers and dependents medical expenses.
If any distributions are made as a result of the above, the IRS will not impose the 10% early withdrawal penalty.