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  • What Happens If Someone Taps Retirement Plan Early: Arledge and Associates Q&A

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    - Early withdrawals from retirement plans are usually subject to a 10% penalty before age 59.5, but there are some exceptions including withdrawals to pay for unreimbursed medical expenses over 10% of income, qualified higher education expenses for a child or grandchild, and distributions due to the death of the account owner. - Withdrawals to pay for health insurance while unemployed or to pay bills after the death of a spouse who was the sole breadwinner can also avoid penalties. - All early distributions are considered taxable income but following the exceptions can avoid the additional 10% penalty. Consulting a tax advisor is recommended to understand individual tax situations and applicable exceptions.

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    A2 ELL 9-21-17

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    A2 ELL 9-21-17

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    - Early withdrawals from retirement plans are usually subject to a 10% penalty before age 59.5, but there are some exceptions including withdrawals to pay for unreimbursed medical expenses over 10% of income, qualified higher education expenses for a child or grandchild, and distributions due to the death of the account owner. - Withdrawals to pay for health insurance while unemployed or to pay bills after the death of a spouse who was the sole breadwinner can also avoid penalties. - All early distributions are considered taxable income but following the exceptions can avoid the additional 10% penalty. Consulting a tax advisor is recommended to understand individual tax situations and applicable exceptions.

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    © All Rights Reserved
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    10 views1 page

    What Happens If Someone Taps Retirement Plan Early: Arledge and Associates Q&A

    Uploaded by

    Price Lang
    - Early withdrawals from retirement plans are usually subject to a 10% penalty before age 59.5, but there are some exceptions including withdrawals to pay for unreimbursed medical expenses over 10% of income, qualified higher education expenses for a child or grandchild, and distributions due to the death of the account owner. - Withdrawals to pay for health insurance while unemployed or to pay bills after the death of a spouse who was the sole breadwinner can also avoid penalties. - All early distributions are considered taxable income but following the exceptions can avoid the additional 10% penalty. Consulting a tax advisor is recommended to understand individual tax situations and applicable exceptions.

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    © All Rights Reserved
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    Arledge and Associates Q&A

    What happens if someone taps


    retirement plan early
    Editors Note: The following is a Q&A, My family has incurred some large
    answered by Valerie Ard of Arledge and medical bills that we need to pay off.
    Associates. Unfortunately, we will have to use some of
    our qualified retirement savings. Can we do
    There are situations in life which can this?
    force families and individuals to withdraw Yes, distributions to the extent the amount
    monies from their qualified of unreimbursed medical expenses exceed
    retirement plans such as 10 percent of your adjusted gross income are
    401 (k)s and IRA accounts granted an exception to the penalty for this early
    earlier than the accepted tap out.
    age of 59 1/2. We have a grandchild who is eligible to
    Using these funds attend college in the fall. The family however,
    from retirement plans to does not have the financial means to handle
    just make ends meet is an this large expense. We, as grandparents,
    unfortunate situation and have significant qualified retirement savings
    adding a tax penalty to the and wish to help, however we are under age
    scenario makes it even Ard 59 1/2. What are our consequences?
    worse. There are however, Early distributions from your retirement
    some scenarios in which this penalty can be plan are reported as ordinary income to you,
    avoided. Below are some common scenarios tax but if used to cover qualified higher education
    advisors have encountered. expenses for a taxpayer, spouse, child or even
    My husband, the sole breadwinner, grandchild are excluded from penalties.
    passed away unexpectedly. He was younger As a reminder, with all of these early
    than 59 , but in order to keep life afloat, pay distributions you will be required to pick up
    bills and survive I am forced to take early the actual distribution as ordinary income. The
    retirement from my husbands 401 (K) or IRA. penalties, however, will be excluded and you
    Will I be penalized? must report this on Form 5329 along with the
    While taking an early withdrawal from specific exception number that applies to each
    your deceased husbands qualified plan or IRA situation. As always, it is best to consult with
    will cause income to be recognized to that your tax advisor to keep up to date with ever-
    extent, you will not be subject to a 10 percent changing tax laws and advantages that apply to
    penalty. This is because a distribution made you.
    due to death is an exception to the penalty and Valerie Ard is a tax supervisor at Arledge
    can be denoted on the 1099-R and on your tax and Associates, PC, an Edmond- based
    return. accounting firm. Arledge & Associates, PC is
    I lost my job. In order to keep my a recognized leader in the accounting industry
    health insurance coverage, I will be forced to offering practical solutions in the areas of tax
    use a portion of my retirement monies to pay planning, auditing, consulting, accounting
    for my insurance policies. Will I be penalized advisory services and client accounting.
    for this?
    Taking an early tap out of your retirement
    plan to cover health insurance while unemployed
    qualifies for penalty exclusion.

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