Taxpayers may sometimes find themselves in situations when they
need to withdraw money from their retirement plan early. What they may not
realize is that that transaction may mean a tax impact when they file their
return.
Here are 10 facts from the IRS about the tax implications of an
early distribution from your retirement plan.
1. Payments you receive from
your Individual Retirement Arrangement before you reach age 59 ½ are generally
considered early or premature distributions.
2. Early distributions are
usually subject to an additional 10 percent tax.
3. Early distributions must
also be reported to the IRS.
4. Distributions you roll over
to another IRA or qualified retirement plan are not subject to the additional
10 percent tax. You must complete the rollover within 60 days after the day you
received the distribution.
5. The amount you roll over is
generally taxed when the new plan makes a distribution to you or your
beneficiary.
6. If you made nondeductible
contributions to an IRA and later take early distributions from your IRA, the
portion of the distribution attributable to those nondeductible contributions
is not taxed.
7. If you received an early
distribution from a Roth IRA, the distribution attributable to your prior
contributions is not taxed.
8. If you received a
distribution from any other qualified retirement plan, generally the entire
distribution is taxable unless you made after-tax employee contributions to the
plan.
9. There are several
exceptions to the additional 10 percent early distribution tax, such as when
the distributions are used for the purchase of a first home (up to $10,000),
for certain medical or educational expenses, or if you are totally and
permanently disabled.
10.
For
more information about early distributions from retirement plans, the
additional 10 percent tax and all the exceptions, see IRS Publication 575,
Pension and Annuity Income and Publication 590, Individual Retirement
Arrangements (IRAs). Both publications are available on this website or by calling
800-TAX-FORM (800-829-3676).
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