If you are planning or retiring early you should know the impact of taking early distributions from a retirement plan. This article looks at 10 facts you should know about taking early distributions from your retirement plans. Make sure and consult with your tax or financial professional prior to making any decisions. There are additional resources at the end of this article.

Free Retirement Plan Early Distributions From Your Retirement Plans

Free Retirement Plan Early Distributions From Your Retirement Plans

When you are planning your retirement you need to know how much you have available to live on. This can be a different number if you decide to take an early retirement. This article looks at the “Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans”:

 

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #1.

What constitutes an early distribution? Any distribution prior to age 59 ½ would usually be considered an early or premature distribution. That would be number one on the list.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #2.

Early distributions are usually subject to a 10 percent penalty.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #3.

You must report these distributions to the IRS.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #4.

If the distribution is a rollover to another IRA or qualified retirement plan then you are not subject to the 10% penalty. This must be completed within 60 days of receipt of the distribution.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #5.

When the new plan makes a distribution either to you or a beneficiary, the same taxation rules will apply.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #6.

If you make nondeductible contributions to a IRA and later take early distributions from that same IRA, the portion from the nondeductible contributions will not be taxed.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #7.

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

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #8.

If you received a distribution from any other qualified retirement, usually the whole distribution is taxable unless there were after-tax employee contributions.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #9.

Several instances are exceptions to the additional 10% early distribution penalty. If the distribution is used for a first home, certain medical or educational expenses or in the event of a disability. A list of the exemptions can be found in IRS Publication 590, Individual Retirement Account Arrangements.

Ten Important Facts You Should Know About Taking Early Distributions From Your Retirement Plans #10.

IRS Publication 575, Pension and Annuity Income and Publication 590, Individual Retirement Arrangements both contain information about early distributions. These can be found at IRS.gov or by calling 1-800-829-3676.

There are ways to retire early if you know the proper methods. Make sure and consult your personal tax or financial adviser prior to making and early distributions.

Disclosure

Resources:

About.com: Tax Planning For Early Distributions

nysscpa.org: Early Retirement