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• Money in an IRA is designed to be used for retirement, as a consequence, the IRS imposes penalties if money is withdrawn from an IRA before you are 59 1/2, unless certain conditions are met.

• With a traditional IRA, you get a tax deduction in the year in which you make a contribution to the IRA, the money is invested and income accumulates tax free, and you are taxed when you take withdrawals during retirement. With a Roth IRA, you don't get a deduction when you contribute, income is still tax free, and there are no tax consequences when you withdraw the money in retirement. Because you don't get a current year deduction for the Roth, there is no penalty if you withdraw the contributions before retirement. However, and income you've earned will be taxed if it's withdrawn early for a non-qualified reason, and it may also be subject to a penalty.IRS: Publication 590

• When money is withdrawn from an IRA, it is taxed as ordinary income. You can leave the money in the IRA, growing tax free, until you turn 70 1/2, when you need to begin taking distributions. The minimum distribution is calculated based on your remaining life expectancy, and although it is taxed as income, there is no penalty assessed. The mandatory withdrawal rule has been suspended for 2009, however, so there is no obligation to with draw money from your IRA until 2010

• If you withdraw money from an IRA before you are 59 1/2, the full amount will be included in income for the year you withdrew it, and, in addition, you'll owe a tax penalty equal to 10% of the amount you withdrew.

• There are a number of circumstances, however, in which the 10% penalty does not apply:

1. If the withdrawal is used to pay tuition for yourself, your spouse, children, or grandchildren, the penalty will not apply.
2. Up to $10,000 can be withdrawn by first-time home buyers to make a down payment on a house.IRS: First Home
3. There is no penalty if the funds are needed for a hardship such as
   1. Excessive unreimbursed medical expensesIRS: Publication 590
   2. Payment of medical insurance premiums while unemployedIRS: Publication 590
   3. Expenses associated with total and permanent disabilityIRS: Publication 590
4. You can also with draw the money for temporary needs, and it won't be considered income, or assessed a penalty, as long as the full amount is redeposited in a new IRA within 60 days.

• Even if you qualify for one of the IRS exceptions to the penalty, there may be penalties associated with early withdrawal. Certain investments have early withdrawal penalties associated with them, and qualification for one of the IRS exceptions will not exempt you from any penalties the financial institution may impose.