How to Make an Early Withdrawal of Retirement Funds

Raiding your retirement with an early withdrawal costs you more in taxes.

Raiding your retirement with an early withdrawal costs you more in taxes.

Depending on where you've stashed your retirement cash, you might be able to tap it before you reach retirement. Individual retirement arrangements let you get your money out at any time, while employer plans don't let you access the money until you're 59 1/2 -- unless you've left your job or, in some cases, have a severe financial hardship. However, early distributions from either type of account are hit with an extra early withdrawal penalty unless an exception applies -- and just "needing the money" or having a financial hardship won't let you avoid it.

IRA Early Withdrawals

Complete an IRA distribution request form and submit it to your financial institution. The form varies by institution, but generally it requires your name, address, account information and how you want the money paid to you, such as directly depositing it in an account or cutting you a check.

Report the distribution on your income taxes with either Form 1040 or Form 1040A. If you're taking a distribution from a Roth IRA or a traditional IRA that contains nondeductible contributions, complete Form 8606 to figure the taxable portion of your withdrawal. For any IRA withdrawal that's fully taxable, report it on line 15b of Form 1040 or line 11b of Form 1040A. If all or a portion isn't taxable, report the total withdrawal on line 15a or line 11a and the taxable portion on line 15b or line 11b.

Complete Form 5329 to figure your early withdrawal penalty, or notify the IRS of your early withdrawal penalty exception. Typically, the penalty is 10 percent of the taxable portion of the withdrawal. But, any penalty exceptions you qualify for reduce it, such as higher education expenses, health insurance after losing a job, up to $10,000 to buy a first home or suffering a permanent disability.

401(k)s and 403(b)s

Complete an employer plan distribution request form and submit it to your company's financial institution. The form generally requires your name, address, account information and how you want the money paid to you. If you're taking a hardship distribution, include proof of the amount that you need to withdraw. For example, if you need a hardship distribution to prevent a foreclosure, include a copy of the foreclosure notice.

Report the distribution on your income taxes with either Form 1040 or Form 1040A. If you're taking a distribution from a Roth 401(k) or Roth 403(b), complete Form 8606 to figure the taxable portion of your withdrawal. Report any withdrawal that's fully taxable on line 16b of 1040 or line 12b of 1040A. If all or a portion isn't taxable, report the total withdrawal on line 16a of 1040 or line 12a of 1040A, and the taxable portion on line 16b of 1040 or line 12b of 1040A.

Complete Form 5329 to figure your early withdrawal penalty or notify the IRS of your early withdrawal penalty exception. Typically, the penalty is 10 percent of the taxable portion of the withdrawal. Qualifying exceptions -- such as suffering a permanent disability or distributions made to an alternate payee under a qualified domestic relations order -- reduce the penalty.

Items you will need

  • IRS Form 1040 or 1040A
  • IRS Form 5329
 

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