Taking money out early from your retirement plan may trigger an additional tax. You will receive Form 1099-R from your plan administrator.
Here are six things from the IRS that you should know about early withdrawals from retirement plans:
- An early withdrawal normally means taking money from your plan before you reach age 59½.
- 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.
- 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.
- 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.
- There are many exceptions to the additional 10 percent tax. Some of the exceptions for retirement plans are different from the rules for IRAs.
- 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.
The rules for retirement plans can be complex. Contact TACCT for more information.
Resources:
- Retirement Tax Guides – TACCT.net
- Tax Topic 557 – Additional Tax on Early Distributions from Traditional and ROTH IRAs
- Tax Topic 558 – Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs
- IRA FAQs – Distributions (Withdrawals)
- 1040 Central
- IRS Tax Map
Forms and Publications:
- Publication 590, Individual Retirement Arrangements (IRAs)
- Publication 575, Pension and Annuity Income
- Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- Form 5498, IRA Contributions
