Think Before You Take an Early Distribution From a Retirement Plan

1. Payments you receive from your Individual Retirement Arrangement and other qualified retirement plans before you reach age 59 ½ are generally considered early or premature distributions.

2. Early distributions are usually subject to income tax plus an additional 10 percent tax.

3. Early distributions must also be reported to the IRS.

4. Distributions you rollover to another IRA or qualified retirement plan are not subject to any taxes. You must complete the rollover within 60 days after the day you received the distribution.

5. The amount you roll over is generally taxed when the new plan makes a distribution to you or your beneficiary.

6. If you made nondeductible contributions to an IRA and later take early distributions from that same IRA, the portion of the distribution attributable to those contributions is not taxed.

7. If you received an early distribution from a Roth IRA the distribution attributable to contributions is not taxed.

8. If you received a distribution from any other qualified retirement plan, generally the entire distribution is taxable unless you made after-tax employee contributions to the plan.

9. There are several exceptions to the additional 10 percent early distribution, such as when the distributions are used for purchase of a first home, certain medical and educational expenses or if you become disabled. These exceptions are subject to special rules and requirements. For example the first home (up to $10,000 only), educational and medical insurance payments while unemployed exceptions are only valid for IRA distributions. The medical distribution is only allowed to the extent your total unreimbursed medical expenses exceed 10% of your adjusted gross income (7 1/2% if you are over 65).

10. Contact us first! We can advise you on how much the distribution will really cost (it could easily be at least 25% of your distribution) and if you qualify for the exceptions.

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