Last week, the Roni Deutch Tax Center – Tax Help Blog posted an article on the tax implications of early IRA withdrawals. As the blog entry explains, although the purpose of an IRA is to save for the future, it is not uncommon for taxpayers to ‘borrow’ money from their account. Here are excerpts from the article:
Taxes and Penalties
Unless you qualify for a special exemption, every early withdrawal will be subject to a 10% tax penalty. In addition to the flat penalty, you will also have to pay income taxes on the money you take out.
Fortunately, there are tax laws in place that allow taxpayers who have IRAs to take penalty-free withdrawals in certain situations. These instances are known as qualified distributions, and are made to assist those in special financial situations. If you have a Roth IRA which has been open at least five years, distributions can be taken both penalty, and tax-free.