I thought there were several ways the account owner can avoid taxes on...

All withdrawals from a Traditional IRA are taxable as ordinary income. The reference to age 59 ½ has to do with the 10% early withdrawal penalty. If withdrawing funds before age 59 ½, IRA owners pay a 10% penalty on top of the ordinary income tax due on the withdrawal. So, for example, a withdrawal of $20,000 would involve a $2,000 penalty plus taxes on $20,000 of income, which could easily be anywhere between $5,000 and $8,000.

After settling with the IRS, the individual might be left with just over half the amount withdrawn, an extremely inefficient movement of funds that also leaves the account owner less prepared for retirement.

However, the following are qualifying exemptions to the 10% penalty. Although the withdrawal is taxable, the 10% penalty is waived for withdrawals before age 59 ½ made pursuant to the following:

• Death
• Permanent disability
• First home purchase for residential purposes
• A series of substantially equal periodic payments under IRS Rule 72-t
• Medical expenses
• Higher education expenses 

A withdrawal pursuant to death means the IRA owner has died before reaching age 59 ½, and someone else is receiving the account balance as a named beneficiary. In this case, the beneficiary will be taxed but will not be penalized. Unlike a taxable account, which may or may not name a beneficiary, IRAs and other retirement accounts are presumed to name one or more beneficiaries.