Exception to early IRA withdrawal penalties

Q: My practice has not been doing well financially, so I'm considering taking funds from my IRA. I've heard I can avoid some penalties for early withdrawal through something called the 72(t) exception. Is this true?

A: Taxable amounts you withdraw from an invididual retirement account (IRA) or qualified retirement plan before age 59½ are generally subject to a 10% premature distribution tax penalty. Section 72(t) of the Internal Revenue Code, however, makes exceptions to this tax.

Any of these methods may involve the use of a life expectancy table, an appropriate interest rate, and an initial IRA or retirement plan account balance valuation date. To ensure that your distributions qualify for the exception, you should consult an accountant, attorney, or financial planner who is well-versed in income tax and retirement planning.

Send your money management questions to medec@advanstar.com
. Answers to our readers' questions were provided by Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF, founder of Physician Financial Services, Woodbury, New York.