What you should know about taking early withdrawals from a retirement plan
Posted on September 4, 2019
Taxpayers are occasionally tempted to take money out of an individual retirement account or retirement plan early. The CPAs at Teipen Selanders Poynter & Ayres are here to tell you that this can trigger a tax penalty on top of any other income tax you may owe. It’s important to know up front what this decision will actually cost you.
Here are a few key things to consider before you remove cash early from your retirement plan account(s):
- Early Withdrawals. An early withdrawal means taking cash out of a retirement plan before the taxpayer is 59½ years old.
- Additional Tax. The IRS charges a 10 percent penalty on early withdrawals from most qualified retirement plans. However, there are some exceptions to this rule.
- Nontaxable Withdrawals. An early withdrawal does not apply to nontaxable withdrawals (withdrawals of contributions that taxpayers paid tax on before they put them into the retirement plan.)
- Rollovers are a nontaxable withdrawal. Rollovers occur when taxpayers take cash or other assets from one retirement plan and then rollover that money in another plan within 60 days.
- Form 5329. Taxpayers who take an early withdrawal generally need to file Form 5329 with their federal tax return.
Our CPAs best advice?
Make sure you check out all financial options available to you before you decide to take an early withdrawal from your retirement account. TSPA CPAs can help you with the math as well as use the right tax forms to help determine your bottom line.
Not only will an early withdrawal be costly, it can also be complicated. Consider talking with your CPA before you commit.