Early withdrawal

(redirected from Early Distributions)

Early withdrawal

Early Withdrawal

The withdrawal of funds from a fixed-income investment before the prescribed time. Early withdrawal may come from a certificate of deposit before its maturity. More often, however, it refers to a withdrawal from a retirement account before the appropriate age (usually 65 or the date of retirement, whichever is later). Early withdrawals are usually assessed a fee to discourage frequent or abusive use. As a result, early withdrawals usually occur when the account holder is in great financial need. An early withdrawal is also called an early distribution or a premature distribution.

Early withdrawal.

If you withdraw assets from a fixed-term investment, such as a certificate of deposit (CD), before it matures, it is considered an early withdrawal.

Similarly, if you withdraw from a tax-deferred or tax-free retirement savings plan before you turn 59 1/2, in most cases, it's considered early.

If you withdraw early, you usually have to pay a penalty imposed by the issuer (in the case of a CD) or the government (if it's an IRA or other tax-deferred or tax-free savings plan).

However, you may be able to use the money in your account without penalty under certain circumstances. For example, if you withdraw IRA assets to pay for higher education, to buy a first home, or for other qualified reasons, the penalty is waived. But taxes will still be due on the tax-deferred portion of the withdrawal.

References in periodicals archive ?
Contessa's creative Chapter 11 plan permitted qualified creditors to stipulate their claim amounts in exchange for early distributions in December 2011.
In addition to obtaining home equity loans, families with special needs children often take early distributions from their retirement plans, IRAs, and annuities to finance their medical expenses.
Although they can withdraw funds from their IRAs, include the distribution in income, and then claim a charitable deduction, younger taxpayers (under age 59Vi) who may have substantial IRA balances have a further disincentive to contribute any of the IRAs to charity because of the 10% penalty on early distributions.
Hurricane Katrina-related considerations - Legislation created to help those impacted by Hurricane Katrina eliminated the requirement for qualified disaster victims to pay 10 percent additional tax for taking early distributions from their retirement accounts.
In fact, before the QDRO provisions were enacted, there were cases in which qualified plans were amended to allow early distributions that could be rolled into separate IRAs and divided tax free (Private Letter Ruling 8336085).
VEBAs have no penalties for early distributions, and life benefits can pass to the employee's family free of income, estate and gift taxes.
Early distributions conditioned upon employer consent might be permissible, if consent was not a "rubber stamp.
Previously, participants could receive early distributions by surrendering a small share (10 percent) of their benefits.
22, 2004, provides penalties for certain early distributions and delayed payouts.
In 1982 Congress altered the way in which early distributions from annuity contracts were taxed so that such distributions were first taxed as ordinary income and, in some cases, a penalty was imposed.
The tax law imposes a 10% penalty on early distributions from retirement plans, individual retirement arrangements (IRAs), and annuities.
The Tax Court ruled that paying higher education expenses from an IRA was not a modification of a taxpayer's annuity payments from the IRA that would have made the payments subject to the 10% additional tax on early distributions.

Full browser ?