ElectroFile Income Tax Service   Income Tax Service   Terry Hough, President
Terry Hough

March 15, 2013 Newsletter


Tax Rules on Early Withdrawals from Retirement Plans

Taking money out early from your retirement plan can cost you an extra 10 percent in taxes.

Here are five things you should know about early withdrawals from retirement plans.

  1. An early withdrawal normally means taking money from your plan, such as a 401(k), before you reach age 59.
  2. You must report the amount you withdrew from your retirement plan to the IRS on your tax return for the year of the withdrawal. The trustee of the plan will report the withdrawal to the IRS (and you) on Form 1099-R.
  3. You may have to pay an additional 10 percent tax on your withdrawal.
  4. The additional 10 percent tax normally does not apply to nontaxable withdrawals. Nontaxable withdrawals include withdrawals of your cost in participating in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.
  5. If you transfer a withdrawal from one qualified retirement plan to another within 60 days, the transfer is a rollover. Rollovers are not subject to income tax. The added 10 percent tax also does not apply to a rollover.
  6. There are several other exceptions to the additional 10 percent tax. These include withdrawals if you have certain medical expenses or if you are disabled. Some of the exceptions for retirement plans are different from the rules for IRAs.
For more information on early distributions from retirement plans, see IRS Publication 575, Pension and Annuity Income. Also, see IRS Publication 590, Individual Retirement Arrangements (IRAs).
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