When a person younger than 59 and a half withdraws money from an individual retirement arrangement, or IRA, there may be a 10 percent tax on the distributions that are part of the person's gross income during the year of withdrawal, notes the Internal Revenue Service. The person will not have to pay the tax if the money is being transferred to a different IRA account or if he qualifies for several other exceptions.Continue Reading
If the person withdraws money from an IRA to pay for a first-time home purchase, medical expense, education or health insurance premiums, then there may be no penalty, notes Charles Schwab. There are limitations on such exclusions, though. For example, only up to $10,000 can be withdrawn for buying a home, and medical expenses have to be 7.5 percent or higher than the person's adjusted gross income for the penalty to not apply. Similarly, using the money for health insurance requires being unemployed for at least 12 weeks.
Other exceptions include opting for periodic payments instead of a lump sum payment, being called to duty as a reservist or facing a disability. The rules apply to both Roth and traditional IRAs, while inherited IRAs do not have distribution taxes, notes Charles Schwab.Learn more about Financial Planning