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

• A. Stock purchase
• B. Qualified higher education expenses
• C. Medical expenses not covered by insurance
• D. First-time homebuyer expenses

Answer: (A)

The key idea is that the 10% early withdrawal penalty from qualified retirement plans has specific exceptions. Distributions used for qualified higher education expenses, for unreimbursed medical expenses, and for first-time homebuyer costs are among the exceptions that avoid the penalty. Buying stock with an early withdrawal does not qualify as an exempt use, so taking money out to purchase stock would still incur the 10% penalty (in addition to ordinary income tax on the distribution). Therefore, stock purchase is the option that is not exempt.