Advice, Preparation . . . Results™

Don’t touch that retirement fund!

After faithfully squirreling away money in a retirement plan for several years, folks sometimes see a need to pull it out before retiring. When faced with home repairs, your child’s wedding, a down payment on a new home or another large expense, that tidy nest egg may look very appealing.

But beware! If you haven’t yet reached age 59½ you’ll be subject to tax consequences of accessing your retirement funds. Since you gain tax-saving benefits by saving money in a qualified retirement plan, you must report withdrawals on your next tax return—so you can pay the tax and penalty for early withdrawal.

Your plan administrator will already have filed a 1099 with the IRS, so Uncle Sam will be expecting a corresponding entry on your return. Moreover, expect to pay an additional 10% tax on the withdrawal amount. So, if you must take a withdrawal, plan ahead by setting this money aside.

Exceptions do exist to the additional tax. For example, if you’re disabled or have certain medical expenses you’ll be exempt. Also, if money is transferred from one retirement plan to another within 60 days, it’s considered a rollover not a withdrawal. 

For more information on your savings in qualified retirement plans and IRAs, see IRS Publications 575 and 590

If you’re considering taking money from your retirement plan, we urge you to discuss this move with your accountant. Patrick & Robinson CPAs can help you determine the tax consequences before taking the plunge. Reach us at Office@CPAsite.com or 904-396-5400.

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