What happens if I take an early distribution from my IRA?
If you take a distribution from your IRA prior to reaching age 59 ½, a 10% non-deductible excise tax will be due on the amount withdrawn. This 10% excise tax is in addition to any regular income tax which would be payable on the withdrawal in a Traditional IRA. The 10% excise tax is also imposed if, prior to reaching age 59 ½, you borrow from your account, pledge your account as security for a loan or engage in any other prohibited transaction as defined in Code §4975(c). If you borrow from your account or engage in a prohibited transaction, the entire fair market value of your IRA will be subject to the 10% tax. If you pledge your account as security for a loan, only the portion pledged will be subject to the 10% tax.
The penalty does not apply to a rollover to another IRA or Retirement Plan.
The penalty tax is 25% if the distribution is from a SIMPLE IRA within 2 years of the date you first commenced participation in the SIMPLE Plan.