Note that "qualified" distributions do not have any penalties. However, nonqualified distributions only "may" have penalties. There are no penalties if you meet one of the exceptions, even if the distribution is not qualified. As always, don't listen to us, read it from the source.
Here is a quote from Publication 590 (2012):
Publication 590 (2012), Individual Retirement Arrangements (IRAs)
"
Additional Tax on Early Distributions
If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.
Distributions of conversion and certain rollover contributions within 5-year period. If, within the 5-year period starting with the first day of your tax year in which you convert an amount from a traditional IRA or rollover an amount from a qualified retirement plan to a Roth IRA, you take a distribution from a Roth IRA, you may have to pay the 10% additional tax on early distributions. You generally must pay the 10% additional tax on any amount attributable to the part of the amount converted or rolled over (the conversion or rollover contribution) that you had to include in income (recapture amount). A separate 5-year period applies to each conversion and rollover. See
Ordering Rules for Distributions , later, to determine the recapture amount, if any.
The 5-year period used for determining whether the 10% early distribution tax applies to a distribution from a conversion or rollover contribution is separately determined for each conversion and rollover, and is not necessarily the same as the 5-year period used for determining whether a distribution is a qualified distribution. See
What Are Qualified Distributions , earlier.
For example, if a calendar-year taxpayer makes a conversion contribution on February 25, 2012, and makes a regular contribution for 2011 on the same date, the 5-year period for the conversion begins January 1, 2012, while the 5-year period for the regular contribution begins on January 1, 2011.
Unless one of the
exceptions listed later applies, you must pay the additional tax on the portion of the distribution attributable to the part of the conversion or rollover contribution that you had to include in income because of the conversion or rollover.
You must pay the 10% additional tax in the year of the distribution, even if you had included the conversion or rollover contribution in an earlier year. You also must pay the additional tax on any portion of the distribution attributable to earnings on contributions.
Other early distributions. Unless one of the exceptions listed below applies, you must pay the 10% additional tax on the taxable part of any distributions that are not qualified distributions.
Exceptions. You may not have to pay the 10% additional tax in the following situations.
- You have reached age 59½.
- You are totally and permanently disabled.
- You are the beneficiary of a deceased IRA owner.
- You use the distribution to buy, build, or rebuild a first home.
- The distributions are part of a series of substantially equal payments.
- You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
- You are paying medical insurance premiums during a period of unemployment.
- The distributions are not more than your qualified higher education expenses.
- The distribution is due to an IRS levy of the qualified plan.
- The distribution is a qualified reservist distribution.
Most of these exceptions are discussed earlier in chapter 1 under
Early Distributions . "
So a <5 year withdrawal is not a "qualified distribution", but using the age 59.5 exception it also does not incur a tax penalty, I think. Lots of "may" qualifications in there confusing the issue.