Early Withdrawal of Retirement Savings

Having a retirement fund set up to help offset the costs associated with life after employment, is a smart financial decision. However, situations may arise that require you to withdraw some cash from your savings plan earlier than you expected. Doing so can activate an additional tax, and cause you to have to report withdrawals to the IRS.

Early withdrawal is defined as any money removed from the retirement savings before the age of 59 ½. You'll likely have to pay income tax on the money you received, and you can be subject to an additional 10% tax on the withdrawal.

This additional tax doesn't apply to withdrawals that are non-taxable. If you withdraw the amount it costs you to participate in the retirement plan, including all contributions previously taxed before being added to the plan, you won't have to pay tax.

Another non-taxable withdrawal is a rollover. Rollovers occur when you relocate your assets from one plan to another. Typically, you're given a sixty day period to relocate your assets to the second plan once they've been withdrawn from the original fund.