IRA Early Withdrawal Penalties: What You Need to Know

Dealing with IRA withdrawals is a very important part of the process of having an IRA. If you withdraw your money early, you will have to deal with a few drawbacks. Here are the basics of what you should expect when you take an early IRA withdrawal.

Early Withdrawal Penalty

The first thing that you will have to deal with is an early withdrawal penalty. This takes place if you are under the age of 59 1/2 and want to withdraw money from your IRA. If you go through with this process, you will have to pay a 10% early distribution penalty. 

Income Taxes

In addition to the early distribution penalty, you will also have tax implications to worry about. The money that you withdraw will be taxed at your marginal tax rate and be treated as income. Therefore, by the time you get the money out, there is a chance that half of it will be gone in penalties and taxes. 

Exceptions

Although there is a penalty for early distribution, there are some exceptions to the rule. If you qualify for a hardship, you could be able to avoid the penalty. If you become disabled, bought a house, paid for college expenses or had substantial medical bills, you may be able to avoid the penalty by applying for a hardship.