A traditional IRA (Individual Retirement Account) can be a great tool for saving for your retirement down the road. But it can be tempting to withdraw a little of that nest egg if you run short on cash before you reach retirement age. Before you choose to tide yourself over by taking an early distribution from your IRA, make sure you understand the tax ramifications!
Any withdrawal of funds from a traditional IRA before you reach the age of 59½ is considered an early distribution. When you take an early distribution, in the majority of cases, you owe:
- Any regular income tax due on the distribution
- A penalty of 10% of the taxable amount withdrawn
It’s important to weigh the benefits of withdrawing money early from your IRA with these very real tax consequences.
Keep in mind, however, that there are some ways to avoid owing the early distribution penalty, depending on the type of plan you have. Make sure you consult a qualified tax professional, like the experts at Taxation Solutions, Inc., before making any early withdrawals. We’ll be able to give you advice on the pros and cons of taking an early distribution and steer you toward a path that avoids tax penalties, if possible.
Call now for tax advice in Mesa!