Those under age 59½ are subject to a 10% early distribution penalty for withdrawals that do not meet any of these specified reasons:
Disability
Payment of first-time home-buying costs (up to $10,000)
Payment of qualified higher education costs
Payment of medical expenses in excess of 7.5% of adjusted gross income (AGI)
Distributions due to an IRS levy
Qualified reservist distributions
Payment of medical insurance by someone who is unemployed
Distributions taken in the form of an annuity over a set period
There is no specified exception from the penalty for financial hardship, other than those that conform to listed exceptions.
For example, in one recent case a taxpayer, age 53, who lost her job took IRA withdrawals to cover medical costs that did not exceed 7.5% of AGI. She eventually lost her home and, subsequently, went on disability. The distribution was not only taxable but also subject to the 10% penalty. While her situation is unfortunate, the tax law does not provide any relief. The Tax Court refused to create an exception to the 10% for financial hardship; it’s up to Congress to do this.
Source: Best, TC Summary Opinion 2008-160
A distribution of additional shares of a corporation’s stock to its shareholders.