If you take an early distribution from your traditional IRA, (before you reach age 59½), you may be hit with a penalty. In addition to the income tax you’ll pay for the withdrawal, you’ll typically pay a 10% early withdrawal penalty. Exceptions exist, such as withdrawals to pay higher education costs. Suppose you’re under 59½, getting divorced and dividing a traditional IRA with your former spouse. Does that count as an exception? Generally, no, says the IRS, though there are ways to avoid the penalty. They involve a Qualified Domestic Relations Order or a proper trustee-to-trustee transfer under a divorce or separation court order. Mistakes can be costly. Contact us for help.
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