If you are under age 59½, and you need income from one of the following:
- an Individual Retirement Account (IRA, SEP IRA, SIMPLE IRA, IRA Rollover)
- a non-qualified deferred annuity (after-tax premiums)
- a Modified Endowment Contract (MEC)
Then you may be subject to a 10% penalty tax, in addition to the ordinary income tax already due. If you need income from a SIMPLE IRA, the penalty tax can be as high as 25%, in addition to the ordinary income tax already due.
Fortunately, the Internal Revenue Code has some exceptions to these excise taxes or penalty taxes. This subject matter can be complex, which is why it is always a good idea to retain a professional advisor before committing to any plan that involves an exception to the rules.