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 ?
Asked which, if any, premature distributions of retirement savings they had taken, 40.
Of course, pre-591/2 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.
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.
Individuals and their tax advisors should acquaint themselves with the options available in order to plan for IRA distributions that avoid a common pitfall in retirement planning: the penalty for premature distributions.
The American Taxpayer Relief Act of 2012 ("ATRA") allows 401(k) plan participants to convert funds held in their traditional 401(k) accounts into Roth 401(k) accounts without triggering the 10 percent penalty on 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).
Distributions made to an alternate payee under a QDRO are not subject to the 10-percent-penalty tax normally applied to premature distributions from qualified retirement plans (i.
Regularly calculated tax for AMT purposes excludes certain taxes including: (1) the alternative minimum tax; (2) the tax on benefits paid from a qualified retirement plan in excess of the plan formula to a 5% owner; (3) the 10% penalty tax for certain premature distributions from annuity contracts; (4) the 10% additional tax on certain early distributions from qualified retirement plans; (5) the 10% additional tax for certain taxable distributions from modified endowment contracts; (6) taxes relating to the recapture of the federal subsidy from use of qualified mortgage bonds and mortgage credit certificates; (7) the additional tax on certain distributions from education IRAs; and (8) the 15% additional tax on medical savings account distributions not used for qualified medical expenses.
If the IRA owner is under the age of 59 1/2, then the IRC Section 72(t)(2)(A)(iv) exception could be used to avoid the 10% penalty tax on premature distributions.
With a large number of corporate executives retiring before age 59 1/2, planning to avoid the penalties that are imposed for premature distributions is an essential step in the planning process.
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.