Most qualified retirement plans, tax sheltered annuities (TSAs), and IRAs allow withdrawals, without penalty, upon attaining age 59½. But there is a 10% penalty tax on withdrawals made before age 59½ (if the funds are not rolled over) from qualified retirement plans, TSAs, and IRAs, unless the distribution is made under one of the limited circumstances allowed by law. These include:

• distributions made after separation from service with your employer during or after the year in which age 55 is attained (this rule doesn't apply to IRAs);
• distributions made due to disability or after the employee's death;
• distributions for qualified medical expenses that exceed 10% (7.5% age 65 or older) of adjusted gross income;
• distributions after separation from service that are part of a scheduled series of substantially equal periodic payments (the separation from service requirement does not apply to IRAs);
• distributions from an IRA to pay for qualified higher education expenses;
• distributions from an IRA to a qualified first-time homebuyer up to a $10,000 lifetime limit;
• distributions to an "alternate payee" under a divorce court order (i.e., QDRO).