All of the following are exempt from the 10% tax penalty for early qualified plan withdrawals EXCEPT

• A. Medical expenses
• B. First-time homebuyer costs
• C. Stock purchase
• D. Higher education expenses

Answer: (C)

When taking money out of a qualified retirement plan before age 59½, the 10% early withdrawal penalty generally applies, but there are specific exceptions that waive the penalty. Medical expenses, costs for a first-time home purchase, and qualified higher education expenses are examples of withdrawals that avoid the 10% penalty. Using funds to buy stock, however, isn’t one of those exempt purposes, so a withdrawal to purchase stock would still incur the 10% penalty (and would typically be taxed as distribution income according to the plan rules). The key idea is that only certain defined uses avoid the penalty, and stock purchases aren’t among them.