The benefits of contributing to an IRA are near universal. This means that most Americans should, at some point, make contributions to an IRA or some other type of retirement plan to help prepare for retirement.

Some don’t like to contribute to retirement plans because it locks it up. This isn’t entirely true. Money in an IRA can be taken out, but the IRS does place a 10 percent penalty on funds taken before age 59 and a half.

The 10 percent penalty is added to the taxation of the IRA distribution. Generally, IRA contributions are tax-deductible and grow unmolested by taxes, when money is taken out of an IRA the IRS taxes it as ordinary income.

Several situations allow IRA owners to access funds earlier than 59 and a half and avoid the penalty. All IRA owners should be aware of the reasons they can avoid paying the penalty for early distributions.

Distributions due to the death of the IRA owner are penalty free. This means the spouse, children, or any other beneficiary can withdraw the funds from an IRA and not have to pay the penalty.

Disability is another reason IRA owners can access funds penalty free. The IRS states those who are totally and permanently disabled will not pay the penalty.

Distributions to pay college expenses are another expense that will be exempt from the penalty. If an IRA owner pays for college expenses for themselves a spouse or child, there is no penalty. Qualified college expenses used to be only tuition and fees, but now include books, room and board, among other costs.

When an IRA owner is unemployed, they can use early IRA distributions to pay for health insurance premiums. Certain unreimbursed medical costs can also avoid the penalty, but these are subject to thresholds.

There is a rule called 72T that can help IRA owners avoid penalty. If the IRA owner takes equal periodic payments, they can access IRA funds early and are not limited in how they use the money.

Some expenses incurred by military reservists called to active duty may also qualify for exemptions.

Distributions required by divorce are also exempt from the penalty. This requires an official divorce decree which states the distribution is due to divorce. IRA distributions taken without a divorce decree will be penalized.

I cannot emphasize enough the difference between the taxation of the distribution and the penalty. The exemptions listed above are ways to avoid the penalty, not taxation. Normal distributions from Traditional and Rollover IRAs will still be taxable.

Each of the exemptions listed above also has small details that need to be examined before they are utilized. There are also different types of IRAs and other retirement accounts that can have different rules or slight differences than regular IRAs for early distributions. Discuss any early distribution with a qualified tax expert.

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Tom and John Mills are registered investment advisers and certified financial planners. Reach them at 254-0155. MillsWealth.com. Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Strategic Wealth Advisors Group (SWAG), a registered investment adviser.