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 >>
Related Articles
  1. Retirement

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  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

    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.
  4. Retirement

    Worst IRA Mistakes You Can Make

    Here are some costly mistakes that you should avoid with your individual retirement account.
  5. 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.
  6. Retirement

    How a 403(b) Works After Retirement

    Everything you need to know (don't be afraid to ask) about handling your 403(b) plan when you retire.
  7. Retirement

    Tapping Retirement Funds Early – Without a Penalty

    The IRS offers several ways to skirt the 10% penalty on early retirement distributions.
RELATED TERMS
  1. Premature Distribution

    Any distribution taken from an IRA, qualified plan or tax-deferred ...
  2. Eligible Rollover Distribution

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

    An emergency withdrawal from a retirement plan that may be subject ...
  4. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  5. Qualified Distribution

    Distributions made from a Roth IRA that are tax and penalty free. ...
  6. IRA Plan

    A plan that individuals may establish to arrange and plan for ...
Hot Definitions
  1. Expense Ratio

    A measure of what it costs an investment company to operate a mutual fund. An expense ratio is determined through an annual ...
  2. Pro Forma

    A Latin term meaning "for the sake of form". In the investing world, it describes a method of calculating financial results ...
  3. Trumpcare

    The American Health Care Act, also known as Trumpcare and Ryancare, is the Republican proposal to replace Obamacare.
  4. Free Carrier - FCA

    A trade term requiring the seller to deliver goods to a named airport, terminal, or other place where the carrier operates. ...
  5. Portable Alpha

    A strategy in which portfolio managers separate alpha from beta by investing in securities that differ from the market index ...
  6. Run Rate

    1. How the financial performance of a company would look if you were to extrapolate current results out over a certain period ...
Trading Center