Some taxpayers may have needed to take
an early distribution from their retirement plan last
year. The IRS wants individuals who took an early distribution
to know that there can be a tax impact to tapping your
retirement fund. Here are some facts about early distributions.
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 rollover 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, for certain
medical or educational expenses, or if you are disabled.
Contact our office for more information
about early distributions from retirement plans, the
additional 10 percent tax and all the exceptions.
