11.17.20

If You Have a Traditional IRA and Take a Distribution Before Age 59 ½, The Amount is Subject to Income Tax and You’ll Generally Owe an Additional 10% Early Withdrawal Penalty Tax

If You Have a Traditional IRA and Take a Distribution Before Age 59 ½, The Amount is Subject to Income Tax and You’ll Generally Owe an Additional 10% Early Withdrawal Penalty Tax

However, there are several exceptions when you can avoid the 10% penalty. In one case, a taxpayer who hadn’t reached age 59 ½ took a $7,800 distribution from his IRA. He didn’t report it on his tax return or pay the 10% penalty. He also didn’t roll it over into another IRA or retirement account. The U.S. Tax Court stated that he made “frivolous arguments” that didn’t prove that any exception to the 10% penalty applied. Therefore, the court ruled he was liable for the penalty. (TC Memo 2020-151)