What Percentage Do I Need to Pay on an Early IRA Withdrawal?

by Jane Meggitt

Whether your individual retirement account (IRA) is a traditional or Roth IRA, you can't withdraw assets before age 59 1/2 without having to pay a penalty. Generally, withdrawals made before this age incur a 10 percent penalty from the IRS, along with ordinary income taxes on the amount withdrawn. Depending on why you are withdrawing the funds, the 10 percent penalty can be waived.

Qualified Reservists

Qualified reservists called to active duty after September 11, 2001 do not have to pay the additional tax on early withdrawals. The active duty period must be either indefinite or at least 179 days. Any withdrawal must be made with the time frame of the call to close of active duty. Reserve refers to the Army, Navy, Air Force, Coast Guard or Marine Corps Reserve, the Army or Air National Guard of the United States, and the Reserve Corps of the Public Health Service.

Education Exceptions

Withdrawals made for qualifying higher educational expenses for the account owner, spouse or child is exempt from the 10 percent penalty. These expenses include tuition, room and board, books, fees and required equipment, and supplies necessary for enrollment. Students must attend school at least half time for room and board expenses eligibility. The IRS considers eligible educational institutions to be any post secondary institution participating in the federal student aid program. The amount withdrawn from the IRA cannot exceed eligible expenses for penalty waiver purposes.

First Home Exceptions

Up to $10,000 in early withdrawals may be taken from an IRA without penalty for the purchase of a first home. To qualify, it must be the first home purchase for both the account owner and the spouse. Eligible expenses include the costs for purchasing or building a home, financing and closing and settlement fees. If construction or purchase is delayed or cancelled after the early withdrawal, the amount may be returned to the IRA within four months of the distribution, and is considered a rollover contribution by the IRS.

Medical and Other Exceptions

If the account owner is legally declared totally and completely disabled, the 10 percent penalty for early withdrawal is waived. Other medical exceptions include withdrawals for payment of medical expenses exceeding 7.5 percent of the account holder's adjusted gross income. Unemployed account holders are not subject to early withdrawal penalties if using the funds to pay for medical insurance for themselves or family members, as long the distributions do not exceed the actual medical insurance costs.

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