Distributions taken from a Traditional ira before the IRA holder reaches age 59½ are called early distributions. The amount included as income is subject to a 10 percent penalty under the federal tax code. However, there are a few exceptions where the 10 percent penalty does not apply. With many investors forced to dip into retirement savings, it is important to find out in advance if you might qualify for an exemption. Here are a few examples to illustrate when individuals are exempt from paying the 10 percent early distribution penalty:Beneficiary: A distribution made to a beneficiary or to the IRA holder's estate due to the IRA holder's death is not subject to this penalty.Disability: A distribution made due to disability is not subject to this penalty. Someone is not considered disabled unless he or she furnishes proof of the disability in such form and manner as the Secretary may require.Substantially Equal Payments: A scheduled series of substantially equal periodic payments is not subject to this penalty. This special exception is subject to many restrictions. Investors should consult their advisor, CPA, or attorney for more information about their specific circumstances.Medical Expenses: A distribution made to pay for medical expenses that exceed 7.5-percent of gross income is not subject to this penalty.Health Insurance: An IRA distribution can be taken without penalty by an unemployed individual to pay for health insurance if he or she receives unemployment compensation for 12 consecutive weeks. The amount of the qualified distribution may not exceed the amount paid for insurance protection.Qualified Higher Education Expenses: An IRA distribution is not subject to this penalty if taken to pay for qualified higher education expenses of the IRA holder, the IRA holder's spouse, or any child or grandchild of the IRA holder or the IRA holder's spouse.First-Time Home buyer Expenses: This penalty does not apply when an IRA distribution is taken from an IRA to pay for certain first-time home purchase expenses (subject to specific dollar limitations; please check with your advisor).Conversions (Direct or Indirect): An IRA distribution from a traditional IRA that is properly converted to a Roth IRA is not subject to this penalty. IRS Levies Effective for distributions after December 31, 1999, a distribution that is made as a result of an IRS tax levy is not subject to this penalty.Qualified Reservist Distribution: An IRA distribution taken by a qualified U.S. military reservist (including National Guardsmen) who is called to active duty after September 11, 2001, is not subject to this penalty.Additional situations in which the 10-percent early distribution penalty does not apply include the following:Rollover: A proper direct rollover, indirect rollover, or transfer is not subject to this penalty.Non-deductibles: The portion of a distribution representing a return of nondeductible IRA contributions is not subject to this penalty. The information in this article is provided for personal, educational and informational purposes only and does not constitute a recommendation or endorsement with respect to any company, security or investment. All investments involve risk, including the possible loss of principal. Individuals should work closely with their accountant, financial advisor, and/or attorney before implementing any significant change to their investment portfolio. All investments in Individual Retirement Accounts administered by Trust Administration Services are self-directed. Accountholders should consult with their financial, tax, accounting, and legal advisors prior to making any investments within their self-directed IRA account.