Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

For what conditions can individuals withdraw from an IRA early without facing a penalty?

1. College tuition only

2. Birth of a child only

3. Disability or higher education expenses

4. Any medical expenses

The correct answer is: Disability or higher education expenses

Individuals are allowed to withdraw from an IRA early without incurring a penalty under specific circumstances, as defined by the Internal Revenue Service (IRS). One of these conditions includes disability, which provides a safeguard for individuals who can no longer work due to a medically determinable physical or mental impairment. Additionally, higher education expenses qualify for penalty-free withdrawals, allowing individuals to access their IRA funds to cover qualified educational expenses for themselves or their immediate family members. By allowing withdrawals for these purposes, the IRS recognizes the significance of financial needs associated with unexpected disabilities and the pursuit of education, thus providing some flexibility within the rules governing retirement accounts. The focus on these two situations highlights the importance of supporting both personal health challenges and educational endeavors, making this option the correct answer concerning penalty-free early withdrawals from an IRA. Other choices specify conditions that either do not fully align with IRS rules or are too narrow, which do not encompass the full range of qualifying circumstances for penalty-free withdrawals from an IRA.