What is a an Early or Premature Distribution?
The IRS has stated that in general, "amounts an individual withdraws from his or her IRA or other qualified retirement plan before reaching age 59½ are called ”early” or ”premature” distributions."
These Individuals must pay an additional 10% early withdrawal tax and report the amount to the IRS for any early distributions, unless an exception applies.
Exceptions to the 10% Penalty
As always with the Tax Code, there are several exceptions to 10% penalty applying to IRA distributions prior to age 59½, if any of the following circumstances is applicable to the taxpayer;
1. They receive a distribution from a retirement plan (other than an IRA) after leaving a job and are age 55 (age 50 for qualified public safety employees).
2. They have unreimbursed medical expenses that are more than 7.5% of their adjusted gross income.
3. The distributions are not more than the cost of their medical insurance (IRA only).
4. They are disabled.
5. They are a beneficiary of a deceased plan participant or IRA owner.
6. They are receiving distributions in the form of an annuity.
7. The distributions are not more than their qualified higher education expenses (IRA only).
8. They use the distributions to buy, build or rebuild a first home (IRA only, and limited to $10,000).
9.The distribution is due to an IRS levy.
10. The distribution is a qualified reservist distribution.
11. The distribution is made to an alternate payee under a QDRO.
12. They are receiving a distribution timely made to reduce excess contributions under a 401(k) plan.
13. They are receiving a distribution timely made to reduce excess employee or matching employer contributions (excess aggregate contributions).
14. They are receiving a distribution timely made to reduce excess elective deferrals.
15. They are receiving a permissible withdrawal from an EACA.