To Withdraw or Not to Withdraw

Tax Tip 2019-36

You are in a hard spot for the past few months and you are trying to figure out what to do. You remember that you have been sitting aside money in a 401K and you start to think hey I can just take from my retirement account the impact is not going to be bad, or is it? Here is some information you should know before you take the step that could greatly increase your tax bill.

* Early Withdrawal: An early withdrawal normally is taking cash out of a retirement plan before taxpayer is 59 1/2 years old.

* Additional Tax: The IRS charges a 10 percent penalty on early withdrawals from most qualified retirement plans. There are some exceptions to this rule.

* Non Taxable Withdrawals: The additional tax does not apply to non taxable withdrawals . These include withdrawals of contributions that taxpayers paid tax on before they put them into the retirement plan.

* Rollovers are a nontaxable withdrawal: A rollover happens when taxpayers take cash or other assets from one retirement plan and put the money in another plan within 60 days. A rollover can also happen when they direct their plan administrator to make the payment directly to another retirement plan or to an IRS.

*Form 5329: Taxpayers who took an early withdrawal last year may have to file Form 5329 with their federal tax return.

It is important to know that reporting early withdrawals on your personal tax return following the rules can be complex so it is important that you take time to speak with a tax expert so that you file things correctly. It is important if you have done this take the time to go to: https://www.irs.gov/retirement-plans