- An early withdrawal normally means taking money from your plan before you reach age 59 1/2.
- If you made a withdrawal from a plan last year, you must report the amount you withdrew to the IRS. You may have to pay income tax as well as an additional 10 percent tax on the amount you withdrew.
- The additional 10 percent tax does not apply to nontaxable withdrawals. Nontaxable withdrawals include withdrawals of your cost to participate in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.
- A rollover is a type of nontaxable withdrawal. Generally, a rollover is a distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. You usually have 60 days to complete a rollover to make it tax-free.
- There are many exceptions to the additional 10 percent tax such as using the money for qualified higher education expenses or unreimbursed medical expenses in excess of 10 percent of adjusted gross income. Some of the exceptions for retirement plans are different from the rules for IRAs.
- 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, with your federal tax return.
The rules for retirement plans can be complex, but help is just a phone call away. Call now and make sure you file the right tax forms and get the tax benefits you’re entitled to.