Penalties and Exceptions

We mentioned quite a bit that penalties occur for early withdrawals. Generally the penalty is 10% of the amount taken. However, there are exceptions:

• You do a rollover or transfer to another Traditional IRA
• You convert the amount to a Roth IRA correctly (we will discuss this in a bit)
• You make a proper withdrawal after the age 59 ½ and before 70 ½
• You put too much in your IRA and need to make an excess withdrawal in a timely manner
• You died and the money is being distributed as part of your estate or your need it due to a certified disability (remember this is not your definition of “disability,” it’s the IRS version)
• You’re buying your first home and withdraw up to $10,000
• You have qualified college expenses to pay
• You have qualified medical bills
• You’re out of work longer than 12 weeks and you need to pay medical insurance premiums to keep your coverage
• You owe the federal government via a levy