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February 27, 2009

Does the early distribution penalty apply to distributions from an inherited IRA?


Does the early distribution penalty apply to distributions from an inherited IRA?

An individual inherited an IRA from his father. He is now twenty eight (28) years old. He wants to withdraw a portion of the inherited IRA balance to pay higher education expenses and to cover living expenses. Will he owe the 10% early distribution penalty since he is under age 59 ½?

Distributions from an inherited IRA are never subject to the 10% early distribution penalty, regardless of the purpose for which the distribution amounts are used.

Please check with the IRA Custodian  to ensure that the account is properly registered as an inherited IRA, in the names of the decedent and the beneficiary, using the social security number/tax identification number of the beneficiary. One of the most common mistakes made with inherited IRAs is incorrect registration ( titling), which can cause complications for the account holder and other interested parties.

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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