Individual retirement accounts (IRAs) are a good way to create retirement savings. However, certain actions in dealing with IRAs can trigger penalties. Here is a roundup of some recent developments affecting certain IRA-related penalties and suggestions for avoiding them.
Early Distribution Penalty
In today’s cash-strapped economy, many individuals look to their IRAs to bail them out of financial difficulties. However, withdrawing funds from an IRA prior to age 59½ results not only in taxation of the distribution, but also a 10 percent early distribution penalty (Code Sec. 72). There are a number of exceptions to the 10 percent penalty that enable taxpayers to take early distributions without penalty. Here are some recent situations in which taxpayers were or were not successful in avoiding penalties.
