- The IRS assesses a 10 percent penalty on amounts you withdraw (distributions) from your SEP IRA before the year you turn 59 1/2. In addition to the penalty, you will also owe income taxes on the distributions.
- The IRS provides you with a tax incentive for making a SEP IRA contribution--you get to deduct the amount from your taxes. In return, the federal government wants you to leave your money in the account and use it to support your retirement.
- You can get around the 10 percent penalty by qualifying for a penalty exception. If you take a distribution to pay for your first home, or if you use it to pay for qualifying education expenses, you do not owe a penalty. There are also hardship exceptions, including disability and unpaid medical expenses.
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