Here’s what people should know about taking early withdrawals from retirement plans
Taxpayers may need to take money out of their individual retirement account
or retirement plan early. However, this can trigger an additional tax on top of
other income tax they may owe. Here are a few key things for taxpayers to know:
- Early Withdrawals. An early withdrawal normally is taking cash out of a
retirement plan before the taxpayer is 59½ years old.
- Additional Tax. The IRS charges a 10 percent penalty on early
withdrawals from most qualified retirement plans. There are some exceptions to this rule.
- Nontaxable Withdrawals. The additional tax
does not apply to nontaxable withdrawals. These include withdrawals of
contributions that taxpayers paid tax on before they put them into the
retirement plan.
- Rollovers are a nontaxable withdrawal. A rollover happens when taxpayers take cash or other
assets from one retirement plan and put the money in another plan within
60 days. A rollover can also happen when they direct their plan
administrator to make the payment directly to another retirement plan or
to an IRA.
- Form 5329. Taxpayers who took an early withdrawal last year may
have to file Form 5329 with their federal tax return.
- Use IRS e-file. Early withdrawal rules can be complex. IRS e-file is the easiest and most accurate way to
file a tax return. The tax software will pick the right tax forms, do the
math, and help find tax benefits.
More
information:
IRA FAQs – Distributions
Do I Meet an Exception to the Additional Tax on Early Distributions
from IRAs or Retirement Plans?
Publication 590-B, Distributions from Individual Retirement
Arrangements
Publication 575, Pension and Annuity Income
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