Financial Cents View All Posts

About Financial Cents

Don’t pay more in taxes than you have to. Take full advantage of all deductions and credits available. Planning is the key to successfully and legally reducing your tax liability. The author, Juanita Farmer, is the Managing Partner of J.D. Farmer & Associates, LLC, a public accounting firm, located in Germantown. Rely... Read more

Discover Other Local Blogs

We have a great number of amazing blog posts contributed by our local bloggers. Discover what is happening in your neighborhood by reading their latest posts.

Early Withdrawals from Retirement Plans

Many people find themselves in situations where they need to withdraw money from their retirement plan earlier than planned. Doing so, however, can trigger an additional tax on top of any income tax taxpayers may have to pay. Here are five things taxpayers should know about early withdrawals from retirement plans:

1. Early Withdrawal.

An early withdrawal normally is taking cash out of a retirement plan before the taxpayer is 59 1/2 years old.

2. Paying Additional Tax.

If a taxpayer took an early withdrawal from a plan last year, they must report it to the IRS. They may have to pay income tax on the amount taken out. If it was an early withdrawal, they might have to pay an additional 10 percent tax.

3. Nontaxable Withdrawals.

The additional 10 percent tax does not apply to nontaxable withdrawals. These include withdrawals of contributions that taxpayers paid tax on before they put them into the plan. A rollover is a form of nontaxable withdrawal. A rollover occurs when people take cash or other assets from one plan and put the money in another plan. They normally have 60 days to complete a rollover to make it tax-free.

4. Exceptions.

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

5. Form 5329.

If someone took an early withdrawal last year, they may have to file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with their federal tax return.

Please call if you have any questions about early withdrawals or filing Form 5329.

Like this post? Sign up for our Daily Update here.
Juanita Farmer, CPA

About Juanita Farmer, CPA

Juanita Farmer. CPA is the Managing Partner of J.D. Farmer & Associates, LLC, a Public accounting firm, located in Germantown, Maryland. Ms Farmer has been practicing in the field of accounting and tax for over 27 years.

Comments

| Comments are closed.

Engage us on Facebook

Follow us on Twitter