Is there a "hardship distribution" exception I can use to avoid federal tax on an emergency distribution from my IRA to meet unexpected expenses?
The rules for IRAs are much different from those governing 401(k)s, which causes a lot of confusion. In general, there are no restrictions on IRA distributions but your IRA distribution will be treated as taxable income earned in the year of the distribution and must be reported as such. The financial institution holding the IRA will also report your distribution to the IRS. There is an additional 10 percent "early distribution tax" which may be avoided in limited circumstances, such as a first-time home buyer distrubition and a distribution for certain higher education expenses. The IRS publication 590-B Distributions from Individual Retirement Arrangements (IRAs) contains information concerning the various exceptions available.