• FreeAdvice has a new Terms of Service and Privacy Policy, effective May 25, 2018.
    By continuing to use this site, you are consenting to our Terms of Service and use of cookies.

Early withdrawal from IRA rollover account?

Accident - Bankruptcy - Criminal Law / DUI - Business - Consumer - Employment - Family - Immigration - Real Estate - Tax - Traffic - Wills   Please click a topic or scroll down for more.

lisaac

Junior Member
What is the name of your state? Washington

I am 29 and need to make a withdrawal from a IRA Rollover account. I found form 72 (t) on the companys website that I have my IRA with.

Before I go through the bother of filling out the paperwork and sending it in, is this an option for me at my age? My hours at work were cut drastically and need money to hold me over for the next month. I know there will be a penalty, and taxes will be withheld but is there any other issues I should know about?

Thanks in Advance !
 


FlyingRon

Senior Member
If your hours were drastically cut for no fault of your own, try unemployment insurance.


http://www.wa.gov/esd/ui/icapp/start.htm

A withdrawl is an option, but as you know you have to pay 10% penalty plus income tax on the money removed. Further, you can't ever undo this, so your retirement is hosed as well.
 

efflandt

Senior Member
I believe there is manditory 20% tax withholding from an early IRA distribution (non-periodic withdrawl before age 59.5). But the actual tax and penalty is likely to be more than that (plus state tax if any), so you may need to come up with more money by tax filing deadline. See irs.gov publication 590.

What you may not realize is that drawing $2500 now would get you a check for $2000, and additional taxes may shrink that to $1700 or less. But depending upon the compounded return of your investments, that could cost you $50,000 to over $100,000 in potential retirement savings 30 or 40 years from now.
 

Pub590

Junior Member
How much are planning on taking out? If it is a small amount then it may not hurt you so much in the long if you were able to contribute something back to a IRA in the next year or so. Whatever it is the total amount would be included as income. Since you also under 59 1/2 there is a 10% penalty if you don't meet any exceptions. Anything that was withheld would then be claimed on line 64 of the 1040 along with your W2s. For the penalty, 10% of the gross distribution would go on line 60 of the 1040 with the word "no" in the left margin next to line 60. The gross distribution itself would go on line 15b of the 1040 and nothing on 15a assuming it is all taxable. You also mentioned 72(t). A 72(t) is equal periodic payments. This allows you take a certain amount of money each month or each year without the 10% penalty. However what is taken out will still be taxable as ordinary income. If you do a 72(t) you are locked into this for at least 5 years. If year miss a distribution or the the amount you agreed upon changes the 72(t) is voided and you be subject to the 10% penalty for everything you had taken out on the 72(t).

Unemployment does not sound like a option if your hours were cut and you are still working.
 

abezon

Senior Member
Unemployment is a fine option & you should pursue it first. The benefits are still taxable, but there's no 10% penalty.
 

FlyingRon

Senior Member
It's 10% not 20%.
I believe if they've moved you to part time status, you can apply for reduced benefits (but you have to be looking for full time work as if you were fired).

The problem is that there's no "replenishment feature" in the IRA. He can only put back based on the annual contribution limits ($5000 for 2008/2009). If he was making maximum contributions, he may never catch up.
 

efflandt

Senior Member
It's 10% not 20%.
If you were referring to me, the 20% I mentioned is manditory withholding from the tax deferred gain of any IRA distribution qualified for rollover. A distribution at age 29 is "qualified" to be rolled over, whether it actually is or not. See page 27 of http://www.irs.gov/pub/irs-pdf/p590.pdf

It is not referring to the 10% early withdrawl penalty, or default 10% (not required) withholding for things like the gain of cashed out (surrendered) insurance policies (not subject to 10% penalty).
 

Pub590

Junior Member
Unemployment is a fine option & you should pursue it first. The benefits are still taxable, but there's no 10% penalty.
How did you determine there is no 10% penalty?

The exceptions to the penalty for IRAs are as follows:

You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income.
The distributions are not more than the cost of your medical insurance.
You are disabled.
You are the beneficiary of a deceased IRA owner.
You are receiving distributions in the form of an annuity.
The distributions are not more than your qualified higher education expenses.
You use the distributions to buy, build, or rebuild a first home.
The distribution is due to an IRS levy of the qualified plan.
The distribution is a qualified reservist distribution.
 

Find the Right Lawyer for Your Legal Issue!

Fast, Free, and Confidential
data-ad-format="auto">
Top