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Early Retirement Plan Withdrawals and Your Taxes

3/18/2014

 
Taking money out early from your retirement plan may trigger an additional tax.  Here are seven things from the IRS that you should know about early withdrawals from retirement plans:

1.  An early withdrawal normally means taking money from your plan before you reach age 59½.

2.  If you made a withdrawal from a plan last year, you must report the amount you withdrew to the IRS.  You may have to pay income tax as well as an additional 10 percent tax on the amount you withdrew.

3.  The additional 10 percent tax does not apply to nontaxable withdrawals.  Nontaxable withdrawals include withdrawals of your cost to participate in the plan.  Your cost includes contributions that you paid tax on before you put them into the plan.

4.  A rollover is a type of nontaxable withdrawal.  Generally, a rollover is a distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan.  You usually have 60 days to complete a rollover to make it tax-free.

5.  There are many exceptions to the additional 10 percent tax.  Some of the exceptions for retirement plans are different from the rules for IRAs.

6.  If you make an early withdrawal, you may need to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your federal tax return.

7.  The rules for retirement plans can be complex.   No matter how you prepare your taxes, you should always file electronically with IRS.  More than 80 percent of taxpayers e-file for faster refunds or for easier electronic payment options.

More information on this topic is available on IRS.gov.

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  • Home
  • About
    • Book An Appointment
  • Accounting
    • Dashboard
    • Xero+Accountency
    • Xero Intro
    • AutoMagical Accounting
    • QuickBooks >
      • QuickBooks Updates
    • Store
  • Payroll
  • Taxes
    • Dashboard
    • Individuals
    • Businesses
    • Tax Stuff >
      • Individuals >
        • Income >
          • Debt Forgiveness
          • Foreign Income
          • Gambling Income
          • Unemployment
          • Other Income
        • Deductions & Credits >
          • Adoption
          • Charitable Contributions
          • Earned Income Tax Credit
          • Educational Expenses
          • Energy Tax Credits
          • Employee Business Expenses
          • Other Deductions and Credits
        • Affordable Care Act - Individuals
        • Children and Dependents
        • Death
        • Disabled Taxpayers
        • Educators
        • Health Care
        • Identify Theft
        • Marriage and Divorce
        • Military
        • Real Estate
        • Retirement Savings
        • Seniors
        • State Taxes
        • Record Keeping
        • Who Must File
        • Other Topics
      • Businesses >
        • Affordable Care Act - Businesses
        • Year-end Reporting Obligations >
          • 1099's
          • Health Insurance Premiums
          • Depreciation
          • Reimbursed Employee Business Expenses
          • Company Automobiles
        • Employment Tax Credits
        • Independent Contractors
        • Tax Credits and Deductions for Businesses
        • Other Business Topics
        • Required Business Posters
      • Amended Returns
      • IRS Notices and Problems
      • Tax Plan >
        • All About the Earned Income Tax Credit
        • 5 IRS Audit Red Flags
        • Retirement Plans for Sole Proprietors
        • Are You Claiming All of Your Tax-Deductable Business Expenses for 2015?
        • All About Past Due Tax Returns
        • Do You Need to File Form 1099s?
        • How to File an Appeal with the IRS
        • Why You Might Get a Letter from the IRS, and What to Do
        • How to File an Amended Tax Return
        • Should You Claim the Home Office Deduction?
        • How to Avoid -- And Deal with -- Identify Theft
        • Q & A: IRS Audits
        • Are You Using the Right Business Structure?
        • Starting Planning for 2015 Income Taxes Now: 5 Tips
        • What You Need to Know About Estimated Taxes
        • Contractor or Employee? How the Income Tax Obligations Differ
        • The New Form 1095-A: Reporting Health Insurance Coverage
        • Are Your Social Security Payments Taxable?
        • Do You Qualify for the Earned Income Tax Credit?
        • Are You Eligible for Health Insurance Tax Credits
        • Employee Retirement Plans - Tax Advantages and Other Benefits
        • 5 Business Tax Credits You May Be Missing
        • New Business in 2012
        • Is it a Bad Debt or a Simple Revenue Loss? Telling the Difference
        • Business Taxes Add Complexity: How Will This Affect You?
      • Tax Scams