IRA Tax Penalties

Video Transcript

Hi, I'm Tom Choisnet, enrolled agent and a client called in about an early IRA distribution. Early IRA, 401K or qualified pension plan distributions are subject to a ten percent penalty in addition to regular income tax. There are several exceptions which I can go through in another clip but most importantly don't touch that money, please take it from Papa here, and do not touch that money early if there is any way that you can get around it. What I like to advise my clients is that in the years when the deductions aren't a pressing need it is a good time to fund your Roth IRA because those can be taken out up to the extent of your contribution without tax penalty, that just works like a regular savings account. I've got some other notes here about that; make sure I've told you everything I need to about that. Oh, yeah another way to get your money out for a temporary need is a sixty day rollover, you take the money out and use it for a specific purpose and then put it back in. Now that is sixty days, not two months, it's sixty calendar days, because a lot of times that is going to be a different day than the day you took it out two months down the road. I hope that I have enlightened you a little bit. Don't take that early distribution. Thank you.

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