Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

To understand which type of payment is not exempt from the 10% premature penalty for IRA distributions, it's important to know how the rules for IRA withdrawals work. Generally, the Internal Revenue Service (IRS) imposes a 10% penalty on early withdrawals made from an Individual Retirement Account (IRA) prior to reaching the age of 59½. However, there are several exceptions to this rule.

Qualified reservist distributions are exempt from the penalty, as are withdrawals made for qualified medical expenses that exceed a certain percentage of the taxpayer's adjusted gross income. Similarly, the first-time home purchase exception allows individuals to withdraw up to $10,000 penalty-free for the purchase of a home, provided they meet certain qualifications.

Separation from service at age 55 is a unique scenario. While this can allow individuals to access their retirement accounts without the 10% penalty, it does not apply to all IRA distributions. The rule specifically applies to plans such as 401(k)s and similar employer-sponsored plans but not to traditional IRAs. Therefore, if someone separates from service at age 55 and wants to take distributions from their IRA, those distributions would still incur the 10% penalty, marking them as non-exempt.

Understanding these exceptions helps clarify