UPDATE FROM THE OFFICES OF CAROL McATEE & ASSOCIATES, CPAS, St. Petersburg, FL 33710

Posted on December 16, 2015 by Carol

Carol McAtee & Associates, CPAS

 

 

Early Retirement Plan Withdrawals and your Taxes

Another item for your tax-planning consideration is that taking money out early from your retirement plan may trigger an additional tax.

Here are six things 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 59 1/2.
  2. If you make a withdrawal from a plan this 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 such as using the money for qualified higher education expenses or unreimbursed medical expenses in excess of 10 percent of adjusted gross income. 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.

The rules for retirement plans can be complex, but help is just a phone call away. Call now and make sure you file the right tax forms and get the tax benefits to which you are entitled.

 

 

If you have any questions about this topic or other tax related questions, please do not hesitate to contact us at 727-327-1999.

ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER, OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER  PARTY ANY MATTERS ADDRESSED HEREIN.

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