Premature Distribution

DEFINITION of 'Premature Distribution'

Any distribution taken from an IRA, qualified plan or tax-deferred annuity that is paid to a beneficiary that is under age 59.5. Premature distributions are subject to a 10% early-withdrawal penalty by the IRS as a means of discouraging savers from spending their retirement assets prematurely.

BREAKING DOWN 'Premature Distribution'

There are several instances in which the premature-distribution penalty rules are waived, such as for first-time homebuyers, education expenses, medical expenses and Rule 72(t), which states that a taxpayer can take IRA withdrawals before they are 59.5 as long as they take at least five substantially equal periodic payments (SEPPs).

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