How can I avoid paying taxes on early retirement plan withdrawals?

December 31, 2014 by Dave Du Val, EA
glasses and pen laying on top of tax form

Hey Dave,

I retired from my main source of employment due to some health issues, but I am not ready for Social Security and I am not yet retirement age at 57. In mid-January of 2014 I had to pull out about $15,000 from my retirement account to help pay the mortgage and bills. I would like to know how to waive any tax fees, if it all possible. I've been working with temporary agencies and that income should be under $25,000.00. What advice can you give me regarding tax filing?

Harry

 

Harry,

Our answer assumes that your retirement accounts are neither Roth IRA nor Designated Roth accounts. Generally, any distributions you made during the year from other types of retirement accounts will be subject to income tax, unless you have some basis in your accounts. Basis is essentially any after tax contributions you made, such as a nondeductible contribution to a Traditional IRA. You will also be subject to a 10% additional tax on early distributions unless you qualify for one or more of the exceptions. There are a number of exceptions. More information on exceptions for early distributions from IRA accounts is available here, or if the distributions are from retirement plans other than IRAs, here.

Deductibly Yours,

Dave

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David E. Du Val, EA
Chief Compliance Officer for TRI Holdco

 

Dave Du Val, EA, is Chief Compliance Officer for TRI Holdco. Inc., the parent company of TaxAudit, and Centenal Tax Group. A nationally recognized speaker and educator, Dave is well known for his high energy and dynamic presentation style. He is a frequent and popular guest speaker for the California Society of Tax Consultants, the California Society of Enrolled Agents and the National Association of Tax Professionals. Dave frequently contributes tax tips and information to news publications, including US News and World Report, USA Today, and CPA Practice Advisor. Dave is an Enrolled Agent who has prepared thousands of returns during his career and has trained and mentored hundreds of tax professionals. He is a member of the National Association of Tax Professionals, the National Association of Enrolled Agents and the California Society of Enrolled Agents. Dave also holds a Master of Arts in Education and has been educating people since 1972. 


 

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