Choosing to make an early withdrawal from your IRA can be a costly move, resulting in unfavorable consequences such as tax penalties and loss of future growth. To discourage the early collection of designated retirement money during taxpayers’ working years, the federal government imposes a 10 percent penalty in addition to any tax due on gains. A withdrawal made earlier than age 59 1/2 could qualify for such a penalty unless an available exemption criterion is met. Even then, not all exempted withdrawals will be free of additional tax expense. The Pennsylvania Institute of Certified Public Accountants offers the following examples of instances when early withdrawals from an IRA may be less burdensome.
College tuition
In most cases it is OK to make an early withdrawal to pay higher education costs for you, your spouse, your children, or your grandchildren. As long as the eligible student attends an accredited school, either private or public, you can use retirement money to pay for tuition and fees, books, equipment, and other class supplies. Distributions to pay for room and board are also exempt from the 10 percent penalty, as long as the recipient is at least a half-time student.
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