Early Distributions From Retirement Plans

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An early distribution from an Individual Retirement Arrangement (IRA) or a qualified retirement plan need not be a taxing experience. Fortunately, there are exceptions to early distributions.

Any payment that you receive from your IRA or qualified retirement plan before you reach age 59 is normally called an early or premature distribution. As such, these funds are subject to an additional 10 percent tax. But there are a number of exceptions to the age 59 rule that you should investigate if you make such a withdrawal. Some of these exceptions apply only to IRAs, some only to qualified retirement plans, and some to both. IRS Publications 575, Pensions and Annuities, and 590, Individual Retirement Arrangements (IRAs), have details.

In addition to the 10 percent tax on early distributions, you will add to your regular taxable income any distributions attributable to elective deferrals that you contributed from your pay, your employers contribution and any income earned on all contributions to the account. If you made any nondeductible contributions, their portion of the distribution is not taxed, since youve already paid tax on this amount.

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