1. Early Withdrawals. An early
withdrawal normally means taking the money out of your retirement plan before
you reach age 59½.
2. Additional Tax. If you took
an early withdrawal from a plan last year, you must report it to the IRS. You
may have to pay income tax on the amount you took out. If it was an early
withdrawal, you may have to pay an additional 10 percent tax.
3. Nontaxable Withdrawals. The
additional 10 percent tax does not apply to nontaxable withdrawals. They include
withdrawals of your cost to participate in the plan. Your cost includes
contributions that you paid tax on before you put them into the plan.
A rollover
is a type of nontaxable withdrawal. A rollover occurs when you take cash or
other assets from one plan and contribute the amount to another plan. You
normally have 60 days to complete a rollover to make it tax-free.
4. Check Exceptions. There are
many exceptions to the additional 10 percent tax. Some of the rules for
retirement plans are different from the rules for IRAs.
5. File Form 5329. If you took
an early withdrawal last year, you may need to file Form
5329, Additional Taxes on Qualified Plans (Including IRAs) and Other
Tax-Favored Accounts, with your federal tax return. See Form 5329 and its
instructions for details.
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