Receiving early distribution from IRA retirement plans, or individual retirement arrangement plans, shouldn’t be a tedious process. Here are a few details on what one needs to know to get an early distribution from an IRA.
Early Distribution Taxes
Any payments received before the age of 59½ are considered early distributions and are subject to a 10 percent tax. However, there are exceptions to the rule. These depend on the IRA or whether one has a qualified retirement plan.
Elective Deferrals and Rollovers
On top of the 10 percent tax, you’ll have to add your taxable income of distributions known as elective deferrals from your pay or income earned on any contributions to the account. To keep from paying on early distributions for your IRA retirement plans, one can use a tax-free cash transfer known as a rollover. A rollover transfers cash or any other assets from the IRA to an approved retirement plan. This approved retirement plan could be a qualified annuity plan, retirement plan or traditional IRA.
If you make the rollover 60 days from when you get your distribution, when the new plan pays you, the amount rolled over is taxed. The administrator from your old plan can transfer the rollover funds directly to the new plan or to a traditional IRA and all these early distributions have to be reported to the IRS. Retirement plan early distributions can be complex legal matters with a lot of red tape so make sure you find a reputable advisor for your IRA retirement plans to give you the best tax advice you need to proceed.
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