Taking money out of your retirement account before age 59 ½ is not something to be undertaken lightly because it can trigger additional taxes and penalties. Here are some things to keep in mind:
· You must report all early withdrawals to the IRS, unless the money is treated as a rollover. For more information about rollovers, consult a qualified tax professional.
· You must generally pay a 10% penalty on top of your income taxes on an early withdrawal, though there are many exceptions to this rule, depending on your retirement plan or account.
· 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,” along with your federal tax return.
The tax treatment of retirement accounts can be complicated, and it’s a very good idea to consult a financial professional who understands your total financial picture before making early withdrawals.