Taking money out early from your retirement plan can cost you an extra 10% in tax penalties. Here are a few things you should know:
- An early withdrawal normally means taking money from your plan, such as a 401(k), before you reach age 59½.
- You must report the amount you withdrew from your retirement plan to the IRS.
- If you transfer a withdrawal from one qualified retirement plan to another within 60 days, the transfer is considered a rollover. Rollovers are not subject to income tax or penalties.
- There are several other exceptions to the additional 10% tax. These include withdrawals if you have certain medical expenses or if you are disabled. Some of the exceptions for retirement plans are different from the rules for IRAs.
To find out more about early distributions from retirement plans, speak with your tax professional or review IRS Publication 575, Pension and Annuity Income.