Dipping into your IRA

Tapping your IRA can be tempting if you're in need of cash. But most of the time that comes along with a tax penalty if you're under age 59 1/2. The good news is, there are expectations to that rule.

According to Sue Stevens, a CFA, CFP, and CPA at Morningstar, the long arm of IRS is going to get you if you try to take money out of your traditional IRA too early or too late.

Too early means that you're trying to take a distribution before you've reached age 59 1/2. The tariff here is a 10% early withdrawal penalty. Too late means you're trying to delay a distribution after age 70 1/2. In this case it's a 50% penalty on what you should have withdrawn but did not. Ouch.

Stevens says that there are a few ways around the 10% early-distribution penalty. They include:

• Death
• Disability
• Divorce decree
• Certain medical expenses
• Qualified higher-education expenses
• Up to $10,000 toward the purchase of a first home
• Distributions that are substantially equal periodic payments (72[t]) (For information on this see IRS Publication 590, Page 50.)