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What is IRS Notice 433 – Interest and Penalty Information?

IRS Link to Notice — Found Here Notice 433 describes penalties and the applicable interest rates for various years of non-payment when corporate taxes are not paid in a timely manner. This does not apply to individuals unless they are incorporated, and is not to be confused with Forms 433-A, -B, -D, or -F which are for individual purposes and concern applications for a Compromise Notice 746 updates the interest rates for more recent years. Continue reading...

When are My IRA Withdrawals Penalty Free?

The surest way to make tax-free withdrawals is to wait until you are older than 59½, but there are a few other ways. If you are 59½ or older, you can make penalty-free withdrawals. Of course, you will need to pay income taxes on the amount you withdraw from your Traditional IRA. There is a 10% penalty assessed by the IRS on early withdrawals (withdrawals made before age 59½) and these are generally not a good idea. Continue reading...

What if I Need the Money in My IRA Before Retirement?

It is possible to withdraw money from an Individual Retirement Account without incurring a penalty, but it should be used as a last resort. If you withdraw the money before age 59½, you will pay both a 10% penalty and regular income taxes on the amount you withdraw from a Traditional IRA. However, there are special circumstances that allow you to make withdrawals without being charged the 10% penalty. These circumstances might include: paying for college expenses (whether for you, your grandchildren, etc.), paying for costs associated with a disability, medical expenses (must be greater than 7.5% of your adjusted gross income), and first-time home purchase. Continue reading...

What are the Withdrawal Rules From My 457 Plan?

457 plans are the only retirement plan that does not require you to wait until a certain age to avoid an IRS penalty on withdrawals. Unlike 401(k)s and 403(b)s, you are allowed to take money out of a 457 Plan before the age of 59½ without a 10% early withdrawal penalty, but only if you’ve separated from service. Separation from service can mean retiring or just leaving to take a job elsewhere. Roth IRAs allow you to withdraw your principal amount early without penalty, but you will incur taxes and penalties if the gains are withdrawn. 457 plans do not have such stipulations. All other retirement accounts require certain exception criteria to be met for the IRS not to penalize you for early withdrawals. Continue reading...

What are the IRS Guidelines for Filing a Form 4868 Tax Return Extension?

IRS Link to Form — Found Here An individual can automatically have their tax return due date extended by 6 months by filing a Form 4868. Tax returns are generally due by April 15, so this gives a person until October 15 to have the 1040 return submitted. This also goes for other tax return forms such as 1040-A and 1040-EZ. Please note that the IRS expects your taxes to be paid by April 18th, using your best-guess at what you owe, in order to avoid additional charges. People often do not have their tax returns completed by April 15, for various reasons. Continue reading...

What are the Withdrawal Rules for My SEP IRA?

SEP IRAs are subject to the same withdrawal rules as Traditional IRAs. SEP IRA contributions and earnings may be withdrawn at any time, but there are penalties that may apply, using the same rules as those applied to Traditional IRA withdrawals. If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. Of course, there are certain exceptions to the penalties: first time home-buyers expenses up to $10,000, medical bills, educational expenses, and a few others. Continue reading...

Can I Withdraw Money From My Pension Plan?

This is rarely an option, but the IRS does allow it. In general, you can’t withdraw money from a Pension Plan before you retire. You also may not be able to make non-recurring withdrawals after retirement, unless it is a lump-sum settlement. If your plan allowed it, the IRS would treat it just like withdrawals from a 401(k). Withdrawals before 59 ½ would be penalized with a 10% early withdrawal tax. Continue reading...

What are the Withdrawal Rules for My SIMPLE IRA?

SIMPLE IRAs have the same withdrawal rules as Traditional IRAs, with one notable exception. SIMPLE IRA contributions and earnings may be withdrawn at any time, but there are certain penalties that apply. If you are under the age of 59½, you must pay a 10% penalty fee in addition to income taxes on your withdrawal. If the early withdrawal occurs within two years of receiving your first employer contribution, the 10% penalty is increased to 25%. Continue reading...

What are the Withdrawal Rules for My Money Purchase or Profit Sharing Plan?

The standard withdrawal rules for 401(k) accounts apply to these plans. Once you are age 59½, you may begin to make penalty-free withdrawals and only pay income taxes on the amount you withdraw. If you decide to take out money before age 59½, you will have to pay a 10% penalty fee in addition to income taxes on the amount of your withdrawal. Of course, there are exceptions that would allow you to avoid this early withdrawal fee. Continue reading...

What is a 529 Plan?

529 plans are accounts designed to help families save for the future college expenses of young family members. A 529 Plan is designed to help you save money now to pay your child’s college expenses later. Investment companies who design a plan, which looks similar to a retail mutual fund account or IRA, will partner with state governments to offer the state’s official 529 plan. Families can invest in a 529 and gain access to an array of mutual funds. Continue reading...

What are the Withdrawal Rules for My Keogh Plan?

Withdrawal rules for Keoghs will be essentially the same as rules for IRAs and 401(k)s. Once you are age 59½, you may begin to make penalty-free withdrawals and only pay income taxes on the amount you withdraw, similar to a traditional IRA. If you decide to withdraw money before age 59½, you may have to pay a 10% penalty fee in addition to income taxes on the amount of your withdrawal. Of course, there are exceptions. One exception for most qualified plans is for employees who separate from service at or after age 55: this is the early retirement exception, and the 10% penalty will not apply. Keoghs will technically use the early withdrawal rules for 401(k)s and not IRAs, which differ slightly. Continue reading...

What Are the Vesting Rules for My SIMPLE IRA?

Employer contributions to SIMPLEs are immediately vested to the employee. The employer’s contributions into SIMPLE IRAs do not have any vesting restrictions. In other words, the contribution belongs to you immediately after it has been made, notwithstanding standard IRS rules for withdrawals from retirement accounts. SIMPLEs do have some restrictions during the first two years, however, that are known as the ‘Two Year Rule.’ Continue reading...

What are the Tax Implications for Taking Money Out of a Roth IRA?

Distributions taken from a Roth during retirement are not subject any income taxes. Interestingly, the “cost basis” or contributions made to a Roth can be taken out at any time, including before age 59 ½, without tax or penalty. Contributions are recorded on IRS form 5498 and a copy is mailed to you, but you need to keep up with your contributions if you might want to tap into your Roth early. The earnings that accumulate must satisfy the 59 ½ requirement and the five year rule, or be used for first-time homebuyers expense, to avoid the 10% penalty and taxation. The five year rule says that the earnings in a Roth may be taxable if the Roth account is under 5 years old. Continue reading...

Does IRS Rule 72(t) Provide a Way to Take Early 401(k) Withdrawals Without Penalty?

Rule 72(t) allows the owner of a 401(k) or IRA account to take “substantially equal periodic payments” from an account without owing the 10% early withdrawal penalty. Taking money out of a401(k) or IRA before age 59½ will generally cause someone to owe a 10% early withdrawal penalty. One of the ways this penalty can be avoided, however, is if the participant uses 72(t) distributions. IRS rule 72(t) is the section of the code that describes early withdrawal penalties, but it also allows “substantially equal periodic payments” to be taken from a 401(k) or IRA without owing the 10% penalty. Continue reading...

When Can I Access the Money in my IRA?

You have the ability to make withdrawals from an IRA leading up to retirement, but you may be penalized. You are able to withdraw money from your Traditional IRA at any time (after all, this is your money), but it can be a costly decision. If you decide to take out money before age 59½, you will most likely pay a 10% penalty in addition to regular income taxes on the amount that you withdraw. As the name Individual Retirement Account implies, the money is meant to be taken out during retirement. There are a few circumstances in which the IRS will allow you to make early withdrawals without assessing the 10% penalty. These exemptions are mostly for hardships, but first time homebuyers can get up to $10,000 out penalty-free, and college tuition costs for family members can usually be withdrawn penalty-free. Continue reading...

What if I Need the Money in My 401(k) Before I Retire?

Withdrawals and loans can be taken out of a 401(k) before retirement, but the money may be subject to penalties, conditions, and taxes. It is quite common that 401(k) funds are needed before retirement, even though the IRS wants you to wait until you’re 59 ½, and will generally want to levy a 10% penalty on any premature withdrawals. Most plans allow employees to take non-taxed loans out on their balance, which may stunt the growth of the account which was intended for retirement, but if the funds are paid back on-schedule, as stipulated in the plan’s loan agreement, the employee can get back on track quickly. Continue reading...

What Happens If I Withdraw Money From My Cash-Balance Plan Before I Retire?

In general, this won’t even be an option for many. Cash balance plans do not permit partial withdrawals. If you have separated from service at the employer, you can take your entire vested amount with you. You can cash out your balance and pay income taxes on it, as well as a 10% IRS penalty if you’re younger than 59 ½. This penalty may also be avoided if you separated a from service after age 55; these rules are the same for 401(k)s and other qualified plans. Continue reading...

Can I Make Early Withdrawals From My 401(k)?

It depends on the 401(k) plan, but in general the answer would be “yes,” if you’re willing to pay the penalty. It is generally a pretty bad idea to withdraw 401(k) money early. If you withdraw the money before age 59½, the money will be subject to a 10% penalty in addition to regular income taxes. There are exemptions from the penalty, but there fewer exemptions in a 401(k) than an IRA. In an IRA the penalty can be waived for first-time homebuyer’s expenses up to $10,000, or even for educational expenses, but in a 401(k) the 10% penalty will still be levied if withdrawals are made for these reasons — and a plan may not even permit such withdrawals. Continue reading...

What are Hardship Withdrawals from my 401(k)?

The IRS Code allows for certain penalty-free withdrawals, and gives the plan administrator the freedom to define certain other hardship exemptions. Certain kinds of retirement plan withdrawals are excluded from the 10% early withdrawal penalty tax. These include medical expenses which exceed 7.5% or 10% of Adjusted Gross Income, distributions to the family members of active duty military personnel who have been called to active duty, and distributions needed if the participant becomes disabled. Continue reading...

Can I Take Loans Against My 401(k)?

401(k) plans typically allow loans to be taken, so that investors don’t have to pay taxes or an early-withdrawal penalty on the money. Many 401(k) plans allow loans to be taken out on the account balance, up to certain limits, and on a strict repayment schedule. Most plans require loans to be repaid in under two years, but they can give participants up to 5 years to repay a loan. Taking money out as a loan allows participants to avoid early withdrawal penalties and taxes. If the loan is not repaid on-time, it can be treated as a distribution, however, which might cause the investor to incur taxes. Investors usually don’t fully realize the damage that loans (and early withdrawals) can do to the long-term account balance. Continue reading...

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