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Issue Number: IRS Tax
Tip 2011-42
Did you Take an Early Distribution
from Your Retirement Plan?
Some taxpayers may have needed to take an early distribution
from their retirement plan last year. The IRS wants individuals who took
an early distribution to know that there can be a tax impact to tapping
your retirement fund. Here are ten facts about early distributions.
- Payments you receive from your Individual Retirement Arrangement
before you reach age 59 ½ are generally considered early or premature
distributions.
- Early distributions are usually subject to an additional 10 percent
tax.
- Early distributions must also be reported to the IRS.
- Distributions you rollover to another IRA or qualified retirement
plan are not subject to the additional 10 percent tax. You must complete
the rollover within 60 days after the day you received the distribution.
- The amount you roll over is generally taxed when the new plan makes
a distribution to you or your beneficiary.
- If you made nondeductible contributions to an IRA and later take
early distributions from your IRA, the portion of the distribution
attributable to those nondeductible contributions is not taxed.
- If you received an early distribution from a Roth IRA, the
distribution attributable to your prior contributions is not taxed.
- If you received a distribution from any other qualified retirement
plan, generally the entire distribution is taxable unless you made
after-tax employee contributions to the plan.
- There are several exceptions to the additional 10 percent early
distribution tax, such as when the distributions are used for the
purchase of a first home, for certain medical or educational expenses,
or if you are disabled.
- For more information about early distributions from retirement
plans, the additional 10 percent tax and all the exceptions see IRS
Publication 575, Pension and Annuity Income and Publication 590,
Individual Retirement Arrangements (IRAs). Both publications are
available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
- Publication 575, Pensions and Annuities (PDF
227K)
- Publication 590, Individual Retirement Arrangements (IRAs) (PDF
449K)
- Form 5329, Additional Taxes on Qualified Plans (including IRAs) and
Other Tax Favored Accounts (PDF
72K)
- Form 5329 Instructions (PDF
40K)
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