Beware the Early Withdrawal Tax If You’re Under 60

One of the benefits of saving in an IRA is the flexibility to take withdrawals from your account at any time. But, because IRAs were designed to help individuals save for retirement, Congress created rules to discourage individuals from withdrawing IRA funds prior to their retirement years. If you take a payout from an IRA before you turn age 59½, an additional 10% early distribution tax applies to the taxable portion distributed to you. This is separate from the income tax you will owe on the distribution, and it can feel like a significant penalty.

For example, if you take $25,000 from your Traditional IRA, whether in cash or in-kind, before the day you turn 59 years and six months old, you would owe a tax of $2,500 in addition to regular income tax on $25,000, when you file your tax return for the year. Once you reach age 59½ (exactly 6 months following your birth date), the 10% early distribution tax no longer applies.

Meet an Exception to the 10% Early Distribution Tax

Although the early distribution tax is designed to discourage early withdrawals, the law provides exceptions to the tax for individuals in certain situations. IRA owners may be able to avoid the 10% early distribution tax if they qualify for one of these exceptions when the distribution is taken.

Exception Requirements
Disability IRA owner is totally and permanently disabled (generally unable to engage in substantial gainful activity because of physical or mental impairment that is expected to result in death or to be of long-continued and indefinite duration)
Death Distribution is made to a beneficiary on or after the death of the IRA owner
Higher education expenses IRA owner paid qualified higher education expenses during the year for him or herself, or a spouse, child or grandchild
First-time home purchase Homebuyer (and spouse) had no present interest in a principal residence for two years prior to the date of acquisition; homebuyer may be the IRA owner or his or her spouse, or one of their children, grandchildren or ancestors; lifetime limit of $10,000
Unreimbursed medical expenses IRA owner paid unreimbursed medical expenses that exceeded 10% (7.5% for 2017 & 2018) of adjusted gross income (AGI)
Health insurance premiums following unemployment IRA owner received unemployment compensation for 12 consecutive weeks; withdrawal taken during the year unemployment compensation was received or the next year, no later than 60 days after becoming reemployed; and did not exceed the amount paid during the year for health insurance
IRS levy IRS assessed a levy on IRA owner’s IRA assets
Qualified reservist IRA owner takes a withdrawal during active duty period if a member of the National Guard or Reservist and called to active duty for at least 180 days
Substantially equal periodic payments Regular payments scheduled to be made over IRA owner’s life expectancy
Natural disaster Expenses as a result of certain disasters may be eligible for relief

Withdraw Tax-Free From a Roth IRA

Unlike Traditional IRAs, Roth IRAs follow a set of distribution rules that allow IRA owners to access a significant portion of their Roth IRA assets tax-free, even if they don’t meet the requirements for a qualified distribution.

Traditional IRA distribution rules

Withdrawals from Traditional IRAs are usually fully taxable because IRAs are mostly funded with deductible contributions and rollovers of pre-tax assets from employer plans. If the IRA owner made any nondeductible contributions or rolled over after-tax amounts, a portion of each IRA distribution will be nontaxable. Each Traditional IRA distribution is considered to consist of a portion of each type of asset contained in the IRA owner’s IRAs: (1) nondeductible or after-tax assets, (2) deductible contributions, and (3) earnings. The deductible contributions and the earnings are taxable in the year of the distribution and are subject to the 10% early distribution tax if the IRA owner is under age 59½.

Roth IRA distribution rules

Withdrawals from Roth IRAs are usually not taxable because they are funded with after-tax contributions. Each withdrawal is considered to be drawn first from annual contributions in the Roth IRA. These are not included in taxable income and are not subject to the 10% early distribution tax. When the contributions have been depleted, the next source distributed consists of assets that were converted or rolled over from a pre-tax account to the Roth IRA. A distribution from this pool of assets is also tax-free (because taxes were paid at the time of conversion) but may be subject to the 10% early distribution tax if the conversion occurred within the last five years and the IRA owner does not meet an exception. Only after all the tax-free contributions and conversions have been removed are the investment earnings in the Roth IRA considered distributed. These earnings are taxable and may be subject to the 10% early distribution tax if the IRA owner is under age 59½. The same exceptions to the 10% early distribution tax apply to traditional and Roth IRAs.


For more information, see IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), at

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