Under what circumstance can an individual withdraw from an IRA prior to age 59 1/2 without incurring a 10% penalty tax?

Withdrawing from an Individual Retirement Account (IRA) prior to age 59 1/2 typically incurs a 10% penalty tax unless certain exceptions apply. One of these exceptions allows for penalty-free withdrawals to cover qualified higher education expenses, which is why funding college tuition falls under this category.

Qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Since the question pertains to withdrawing funds for the college tuition of the investor's daughter, this falls within the IRS guidelines for penalty-free withdrawals, making it a valid circumstance for accessing funds from an IRA without incurring an additional tax penalty.

In contrast, purchasing a new home, funding a business, or paying off credit card debt does not qualify for this exception. These activities may require withdrawals from retirement accounts, but they do not align with the IRS's stipulations for penalty-free access. Understanding these exceptions is crucial for effective retirement planning and utilizing IRA funds appropriately.