The IRS has allowed you to set aside funds for your retirement in tax-deferred accounts. You are not allowed to defer taxes forever, however, which is why the IRS requires you to begin taxable withdrawals under its minimum distribution rules. The IRS has been waiting for you to start withdrawals so that taxes will finally be paid on the tax-deferred accounts. At the same time, it does not want you to use the retirement funds simply as a tax-deferred savings account. You must wait to begin withdrawals until a reasonable retirement age, which IRS determines is over 59½. If you choose to withdraw money from your IRA or annuity before you turn age 59½, in addition to the income tax due on the funds you receive, there will be an additional 10 percent penalty tax on the withdrawal.

There are five exceptions to the penalty for taking a distribution before you reach age 59½. You will not have to pay the 10 percent penalty if:

• The distribution is due to your death.

• The distribution is made because you are disabled.

• The distribution is made for certain qualified medical expenses.

• The distribution is $10,000 or less and is used to purchase your first home.

• The distribution is for educational expenses following high school.

Keep in mind that you may be shortchanging your own retirement or reducing the assets for your heirs if you take early withdrawals from your IRA or annuity.