Early IRA Withdrawal Tax

December 16, 2014 sarah Uncategorized

Are you considering withdrawing money from your IRA account early? You should consider the following to decide whether this is the right choice for you.

Can I withdrawal money from my IRA account early?

The IRS allows the owners of all types of IRAs the ability to withdraw money early in a few different circumstances.

What are the penalties and tax for an early withdrawal?

Usually when you have an IRA whether it is a traditional IRA, Roth IRA, Simple IRA, if you take an IRA early withdrawal, you will most likely be subject to tax and IRA early withdrawal penalties.

The IRS imposes a 10% premature early IRA distribution penalty tax on IRA early withdrawals made before age 59½. The premature distribution penalty tax is 25% if distributions are made from a Simple IRA in the first two years of participation.

This penalty tax is in addition to the ordinary income taxes due on the taxable portion of any IRA early distribution.

However, there are several ways in which IRA early withdrawals can be made before age 59½ without facing the premature IRA early distribution tax penalty.

These exceptions to early IRA withdrawal penalty are:

 

If the IRA early withdrawal is because of the disability or death of the IRA owner.

 

 

If the IRA early withdrawal is made for payment of certain medical expenses which exceed 7.5% of your adjusted gross income. Also if payment was made for health insurance premiums if you’ve been unemployed for at least 12 weeks.

 

 

If the IRA early withdrawal is made for payment of qualified higher education expenses.

 

 

If the IRA early withdrawal is used for the purchase of a first home (There is a $10,000 lifetime limit on these withdrawals.)

 

 

If the IRA early withdrawal is used to pay IRS tax levies.

 

What many people don’t realize is that in addition to the exceptions to IRA withdrawal penalty related to these life events, an IRA owner is permitted to make penalty-free IRA early withdrawals for any reason if he or she sets up a schedule of “substantially equal periodic payments.”

On your tax return you will also be taxed on the amount of money you have withdrew from your IRA account. The amount of money will be taxed as income. You will be required you to pay income tax on it according to your tax bracket.

If you have more questions regarding an early withdrawal from your IRA account visit TurboTax Online. TurboTax Online will walk you through your entire tax return and guarantee 100% accuracy.

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