Cook Wealth Management Group

Need Money From Your IRA?

If you’re thinking about withdrawing from your retirement account, make sure you consider all the tax implications first. You may be surprised by the IRS rules and exceptions.

  • Premature distributions (before age 59 ½) are taxed as income, since the money was untaxed when it was contributed.
  • The IRS requires an additional 10% tax for premature distributions (there are exceptions.)
  • The additional 10% tax is reported on the Other Taxes section of Form 1040. In some cases, you may also need to file Form 5329.
  • If you roll over your early distribution into another retirement account within 60 days, you are not subject to the additional 10% tax.
  • This 10% tax may also be waived if you spend the early withdrawal on a first-time home, certain education expenses, or qualified medical expenses. But proceed with caution. There are time constraints and very specific spending guidelines that you should be aware of before you withdraw.

With so many exceptions and stipulations, it may be difficult to know what’s right for you, or to know if the timing is most beneficial. When needed, a premature distribution is certainly possible but may not be your only, or best, option. Talk to your advisor before making a premature distribution. You’ll be glad you did.

Content derived from “Retirement Topics – Tax on Early Distributions” and “Top Ten Facts about Taking Early Distributions from Retirement Plans.”