RETIREMENT ACCOUNT PENALTY
Exceptions to Tax on Early Retirement Account Withdrawals
If you make an early withdrawal from your retirement account and believe that puts you on the hook for the 10 percent additional tax on the distribution, you may be wrong. Many people are unaware that the IRS does grant exceptions in some cases.
According to the IRS Resource Guide for retirement plans, if you are under the age of 59 ½ and took money out of your retirement account for any of the following reasons, you may be granted an exception to the 10 percent tax penalty:
- Made to a beneficiary (or to the estate of the participant) on or after the death of the participant.
- Made because the participant has a qualifying disability.
- Made as part of a series of substantially equal periodic payments beginning after separation from service and made at least annually for the life or life expectancy of the participant or the joint lives or life expectancies of the participant and his or her designated beneficiary. (The payments under this exception, except in the case of death or disability, must continue for at least 5 years or until the employee reaches age 59½, whichever is the longer period.)
- Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55.
- Made to an alternate payee under a qualified domestic relations order (QDRO).
- Made to a participant for medical care up to the amount allowable as a medical expense deduction
(determined without regard to whether the participant itemizes deductions).
- Timely made to reduce excess contributions.
- Timely made to reduce excess employee or matching employer contributions.
- Timely made to reduce excess elective deferrals.
- Made because of an IRS levy on the plan; or
- Made on account of certain disasters for which IRS relief has been granted.
A Private Asset Trust can help you manage benefits and avoid penalties.
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