Early Withdrawal? Here’s What You Should Know

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.

 

Footnotes, Disclosures & Sources

Tip courtesy of IRS.gov

1.) https://www.irs.gov/uac/early-retirement-distributions-and-your-taxes