Rules and Exceptions for Early Distributions from Retirement Plans
Reading Time: 1 minute, 4 seconds
Prepared by Susan Clifford, CPA – Principal
While we all realize that we should be saving for retirement, some of us are reluctant to do so because we worry about tying up our money for decades when we might need it for an emergency long before retirement age. If that is your concern, you can stop worrying and start contributing.
In a true emergency, an unforeseen death or disability, or even just something particularly expensive (think first-time home or higher education), you may be able to access your money and avoid the 10% penalty designed to discourage early distributions. You pay taxes only on the income portion of the distribution, tax you would have paid anyway had the investments been in a non-retirement account. The rules differ between qualified plans and IRAs, so you should learn more before deciding which retirement vehicle might better serve your needs. And remember, if your employer offers to match contributions to a retirement plan, not contributing the minimum amount required to receive the full match is the equivalent of turning down free money. Additional retirement savings can go into whichever vehicle gives you the emergency out you think you are most likely to need.
Learn more about early distributions rules for both qualified plans and IRAs.
Socking away money in a tax-advantaged retirement plan can help you reduce taxes and help secure a comfortable retirement. If your employer offers a 401(k) or Roth 401(k), contributing to the plan is a smart way to build a substantial nest egg. If you’re not already contributing the maximum allowed, consider increasing your contribution. Because […]
If you’re a parent or grandparent with college-bound children, you may want to save to fund future education costs. Here are several approaches to take maximum...
The Employee Retention Credit (ERC) was a valuable tax credit that helped employers and kept workers on staff during the height of the COVID-19 pandemic. While...
If you own a business, you may wonder if you’re eligible to take the qualified business income (QBI) deduction. Sometimes this is referred to as the...
As you may know, you can’t keep funds in your traditional IRA indefinitely. You have to start taking withdrawals from a traditional IRA (including a SIMPLE...
Remain informed and connected. Follow us and join our mailing list.