IRA plan owners must pay a 10 percent penalty tax in addition to standard income tax when they take early withdrawals from their plans, explains the Internal Revenue Service. However, if the withdrawal qualifies as an exception, the penalty tax is waived.Continue Reading
IRA plan owners do not need to show hardship to take early withdrawals from their plans, according to the IRS. Any withdrawal from an IRA is included in adjusted gross income for tax purposes in the year the account owner withdraws it. The 10 percent penalty tax for early withdrawal is not deductible as an early withdrawal from savings penalty. Additionally, an account holder may have difficulty replacing a large amount withdrawn early from an IRA because of IRA rules on annual limits on contributions, states Michael Rubin for About.com.
IRA plan owners are able to make early withdrawals without penalty for exceptional financial situations such as expenses for higher education, buying a first home, satisfying a debt to the IRS or paying health insurance premiums while unemployed, reports the IRS. They can also initiate penalty-free early withdrawals if they become completely and permanently disabled or have medical bills totaling 10 percent or more of their adjusted gross income. Military reservists called to active duty for 180 days or more can make penalty-free early withdrawals from IRA plans. The penalty is waived if IRA plan owners take early withdrawals as a series of substantially equal periodic payments.Learn more about Financial Planning