Taxable distributions you receive from your IRA or retirement plan before you reach the age of 59½ are generally considered by the IRS as premature distributions (or early withdrawals). To discourage these premature distributions, they are not only subject to the usual federal and state income taxes on distributions but also to a 10% penalty tax under Internal Revenue Code Section 72(t) (and possibly a state penalty tax). This 10% penalty tax is commonly referred to as the “premature distribution tax.” Fortunately, not all distributions before age 59½ are subject to this penalty. The IRS does allow some exceptions (see below).
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