The early distribution tax rules apply to traditional IRAs (non-Roth IRAs) in much the same way they apply to qualified plans, with just a few exceptions and variations.

No Age 55 Exception. With qualified plans, employees who are at least age 55 in the year they terminate their employment will not be subject to an early distribution tax on distributions from their former employer's qualified plan. This rule does not apply to IRAs, however. If you have an IRA, the only age-related way to escape the early distribution tax is to reach the age of 59 1/2 before taking a distribution -- in other words, not to take the distribution "early."

No QDRO Exception. The special QDRO rules in the Tax Code do not apply to IRAs. Even if your divorce agreement or court order mandates child support or alimony payments from an IRA, the payments will be subject to an early distribution tax (unless one of the other exceptions applies).

Health Insurance Premiums. If you are unemployed or were recently unemployed and use money from your IRA to pay health insurance premiums, the IRA funds used specifically for that purpose will not be subject to an early distribution tax, as long as you satisfy the following conditions:

• you received unemployment compensation for at least 12 consecutive weeks
• you received the funds from the IRA during a year in which you received unemployment compensation or during the following year, and
• the IRA distribution is received no more than 60 days after you return to work.

You may also make a penalty-free withdrawal from your IRA to pay for health insurance if you were self-employed before you stopped working, as long as you would have qualified for unemployment compensation had you not been self-employed.

Higher Education Expenses. Distributions that you use to pay higher education expenses are not subject to the early distribution tax, as long as those distributions meet the following requirements:

• The distributions are used to pay for tuition, fees, books, supplies and equipment. They may also be used for room and board if the student is carrying at least half of a normal study load (or is considered at least a half-time student).
• The expenses are paid on behalf of the IRA owner, or the owner's spouse, child or grandchild.
• The distributions do not exceed the amount of the higher education expenses. (When calculating expenses, you must reduce the total by any tax-free scholarships or other tax-free assistance the student receives, not including loans, gifts or inheritances.)

First Home Purchase. You may take a penalty-free distribution from your IRA to purchase a home. This exception is not as straightforward as it seems, however, and you should be aware of the details:

• You must use the distribution within 120 days of the date that you receive it.
• The funds must be used to purchase a principal residence for a first-time homebuyer. If the homebuyer is married, then neither the homebuyer nor his or her spouse may have owned any part of a principal residence during the preceding two-year period.
• The first-time homebuyer must be the IRA owner, the owner's spouse, or an ancestor, child or grandchild of the owner or the owner's spouse.
• There is a lifetime limit of $10,000.

Refunds. There is a limit to how much you may contribute to an IRA each year. If you contribute too much, then you have made an "excess contribution." If you withdraw the excess by the time you file your tax return, the excess will not be subject to the early distribution tax. You must also withdraw the income earned on the excess while it was in the IRA, however, and that portion will be subject to the early distribution tax, unless it qualifies for another exception.