A:

You are referring to the rule that states that distributions from your qualified plan (including 401k, profit sharing, money purchase plans and 403b plans) after you separate from service with your employer will not be subject to the 10% early-withdrawal penalty, provided the separation occurs in or after the year you reach age 55.
Because this rule is based on you leaving the services of the employer that offers the qualified plan, it does not apply to IRAs. Any amounts distributed from your IRA before you attain age 59 ½ will be subjected to an early-withdrawal penalty, unless you meet an exception to the early-withdrawal penalty.
For more on exceptions to the early-withdrawal penalty, read our article Taking Penalty-Free Withdrawals from Your IRA.
This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Do I still have to pay penalties and taxes on money that I don't roll over from a ...

    It depends. Let's address the two penalties that will apply - the 10% early-withdrawal penalty and the 20% federal withholding ... Read Answer >>
  2. What are the penalties for withdrawing from my Traditional IRA less than a year after ...

    Withdrawals from your Traditional IRA will be treated as ordinary income, and if you are under age 59.5 when the distribution ... Read Answer >>
Related Articles
  1. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  2. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  3. Retirement

    What Happens to a 401(k) After You Leave Your Job?

    Find out what happens to your 401(k) after you leave your job. Learn about your five primary options, including cashing out and rolling over to a new plan.
  4. Retirement

    How a 401(k) Works After Retirement

    Find out how your 401(k) works after you retire, including when you are required to begin taking distributions and the tax impact of your withdrawals.
  5. Retirement

    How an IRA Works After Retirement

    You've read a lot about saving for your future retirement with IRAs. But what happens to the account when the future is here, and you actually retire?
  6. Taxes

    How 401(k) Withdrawals Work When You're Unemployed

    Unemployed individuals can pursue several options when taking money out of their 401(k), but they should carefully weigh taxes and possible penalties
  7. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
  8. Retirement

    Don't Spend Your Retirement-Fund Cash This Way

    Before you cash out or raid one of your retirement funds, consider the following things you should not do with that money.
  9. Retirement

    Worst IRA Mistakes You Can Make

    Here are some costly mistakes that you should avoid with your individual retirement account.
  10. Investing

    4 Options for Your Old 401(k) If You Change Jobs

    These are the four options available for your old 401(k) when you leave a job.
RELATED TERMS
  1. Premature Distribution

    Any distribution taken from an IRA, qualified plan or tax-deferred ...
  2. Substantially Equal Periodic Payment - SEPP

    A plan that allows individuals who have invested in an IRA or ...
  3. Withdrawal Penalty

    Refers to any penalty incurred by an individual for early withdrawal ...
  4. Direct Rollover

    A distribution of eligible rollover assets from a qualified plan, ...
  5. Eligible Rollover Distribution

    A distribution from an IRA, qualified plan, 403(b) plan or 457 ...
  6. Hardship Withdrawal

    An emergency withdrawal from a retirement plan that may be subject ...
Hot Definitions
  1. Leverage

    1. The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment. ...
  2. Trumponomics

    Trumponomics is a term for the economic policies of President Donald Trump.
  3. Universal Health Care Coverage

    An organized healthcare system that provides healthcare benefits to all persons in a specified region. Many countries, such ...
  4. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  5. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  6. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
Trading Center