Early withdrawal

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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 ?
Of course, pre-59V2 distributions must satisfy the "substantially equal periodic payment" (SEPP) rules of IRC Section 72(t) to avoid the additional 10 percent penalty tax for premature distributions.
Thus, nonqualified loans are subject to the penalty tax on premature distributions if none of the usual statutory exceptions applies.
While he would still have to pay income taxes on the distributions from his qualified plan, he can avoid the 10% penalty for premature distributions by employing "a series of substantially equal periodic payments" under IRC [section] 72(t).
Current industry assumptions about pre-retirement are that participants do not borrow from their 401(k) plan and that premature distributions do not happen.
As the Tax Court noted in this case, taxpayers "cannot have it both ways"--they can't avoid the tax by rolling over the inherited IRA and, later, when premature distributions are received, claim they were due to a death to avoid the 10% penalty tax.
The distribution is subject to tax, but not the 10% premature distributions penalty.
Premature distributions--Although premature distributions are generally discouraged, Congress relaxed some of the tough restrictions for qualified Hurricane Katrina victims.
Further, premature distributions from a qualified retirement plan, including most in-service distributions occurring before an employee's reaching age 59-1/2, are subject to an additional 10-percent tax.
A 10% penalty tax applies to the taxable amount of any premature distributions from a certificate.
72(t) additional income tax on premature distributions, as applicable to the receiving plan.
It held the taxpayer could not modify the annual payment without triggering the 10% penalty for premature distributions.
Finally, if you are 55 or older when you leave your employer, you are eligible for an exception to the 10 percent penalty tax that otherwise generally applies to premature distributions.