By Internal Revenue Service
Taxpayers may sometimes find themselves in situations when they need to withdraw money from their retirement plan early. These taxpayers may not be aware that they may face a tax impact when they file their return this year.
Here are the tax implications of taking an early distribution a retirement plan.
1Payments received from Individual Retirement Arrangements before reaching age 59 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 rolled over to another IRA or qualified retirement plan are not subject to the additional 10 percent tax. The rollover must be completed within 60 days after the day the distribution is received.
5 The amount rolled over is generally taxed when the new plan makes a distribution to you or your beneficiary.
6If 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 at www.irs.gov or by calling (800) 829-3676).