Does the 10 Percent IRS Premature Distribution Apply if I Withdraw My Money Before Age 59 1/2?

The 10 percent IRS penalty does not apply to earnings you withdraw when you take any of the qualified distributions listed above.  In addition, the 10 percent penalty is also waived for certain other distribution reasons.  But, for these distributions, taxes on any earnings will apply.  Distributions that are subject to taxes (on any earnings with- drawn) but no penalty include:

  • Substantially equal periodic payments,
  • Eligible medical expenses in excess of 7.5 percent of your adjusted gross income (AGI),
  • Medical insurance premiums for eligible unemployed individuals,
  • Qualified education expenses, and
  • Distributions taken within the first five years for any of these reasons: age 591/2, death, disability, or first-time home purchase.

Distributions taken for any reason other than a qualified reason or one of the reasons listed here are subject to both taxes and a 10 percent IRS penalty on any earnings withdrawn.