Many people need to withdraw money early from their Individual Retirement Account or retirement plan. Doing so, however, can trigger an additional tax on early withdrawals. You may owe this penalty tax in addition to income tax you may have to pay on the withdrawal. Here are a few key points to keep in mind regarding early withdrawals:
- Early withdrawals. An early withdrawal is taking a distribution from an IRA or retirement plan before reaching age 59½.
- Additional tax. If you take an early withdrawals from an IRA or retirement plan, you must report them when you file your tax return. You may owe income tax on that amount plus an additional 10 percent penalty tax on the early withdrawal.
- Nontaxable withdrawals. The additional 10 percent tax doesn’t apply to nontaxable withdrawals; such as contributions that you paid tax on before you put them into the plan.
- Rollover. A tax-free rollover happens when you transfer cash or other assets from one eligible retirement plan and put it into another within 60 days from the date of distribution.
- Exceptions. There are numerous exceptions to the additional 10-percent early withdrawal penalty. Wicks Emmett can assist you in determining if any exceptions apply to your situation.
- Disaster Relief. Participants in certain disaster areas may have relief from the 10-percent early withdrawal tax.
- File Form 5329. If you took an early withdrawals last year, you may have to file Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, with your federal income tax returns.
Early withdrawal rules can be complex. Wicks Emmett can help. If you are thinking about making an early withdrawal from your retirement plan, give the folks at Wicks Emmett a call.