Distributions, Early Withdrawals, 10% Additional Tax
This is archived information that pertains only to the 2002 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
How do I calculate minimum the amount that must be withdrawn from my IRA after age 70 1/2?
You will need to get Publication 590 (PDF), Individual Retirement Arrangements (IRAs) to find out this amount. The minimum distribution is computed using one of three tables found in Publication 590. Table I is used by beneficiaries. Table II is for use by owners who have spouses who are more than 10 years younger. Table III is generally for use by unmarried owners.
References: If we cash in an IRA account while in our thirties, what forms do we need to fill out?
You will need to file a Form 1040 and show the amount of withdrawal from your IRA. Since you took the withdrawal before reaching age 59 1/2, unless you meet certain exceptions listed in Publication 590 (PDF), Individual Retirement Arrangements (IRAs), you will need to pay an additional 10 percent tax on early distributions from qualified retirement plans that is reported on line 58 of Form 1040. You may need to complete Form 5329 (PDF), Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, and attach it to the tax return, if required.
References: - Publication 590 (PDF), Individual Retirement Arrangements (IRAs)
- Form 5329 (PDF), Additional Taxes On Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
- Instructions for Form 5329, Additional Taxes On Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
- Tax Topic 451, Individual Retirement Arrangements (IRAs)
- Tax Topic 557, Tax on Early Distributions from Traditional and Roth IRA's.
If we cash in an IRA account while in our thirties, when do we pay the taxes and penalties?
Because our tax system is a pay-as-you-go system, you may need to make an estimated tax payment by the due date for the quarter in which you received the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should include the amount of the additional 10 percent tax on early distributions from qualified retirement plans unless any exception applies.
You would calculate the tax on Form 1040ES (PDF), Estimated Tax for Individuals, and any 10 percent additional tax on early distributions from qualified retirement plans on Form 5329 (PDF), Additional Taxes On Qualified Plans (Including IRA's) and Other Tax-Favored Accounts.
References: - Form 1040ES (PDF), Estimated Tax for Individuals
- Form 5329 (PDF), Additional Taxes On Qualified Plans (Including IRA's) and Other Tax-Favored Accounts
- Publication 505 (PDF), Tax Withholding and Estimated Tax
- Tax Topic 451, Individual Retirement Arrangements (IRAs)
- Tax Topic 557, Tax on Early Distribution from Traditional and Roth IRA's.
Can the 10% penalty for an early withdrawal from an IRA be deducted in the Adjusted Gross Income section of Form 1040 as a penalty on early withdrawal of savings?
No, the additional 10 percent tax on early distributions from qualified retirement plans you pay for a premature withdrawal of an IRA does not qualify as a penalty for withdrawal of a savings account.
References: 17.2 Individual Retirement Arrangements (IRA): Rollovers How long do I have to roll over a retirement distribution to an IRA account?
You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution.) A written explanation of rollover must be given to you by the issuer making the distribution. For information on distributions which qualify for rollover treatment, refer to Tax Topic 413, Rollovers from Retirement Plans. For information on the Direct Rollover Option, refer to Publication 590 (PDF) Individual Retirement Arrangement.
References: If I can't withdraw funds penalty free from my 401(k) plan to purchase my first home, can I roll it over into an IRA and then withdraw that money to use as my down payment?
Yes, if you are receiving a distribution from a 401(k) that is eligible to roll over into a IRA and you meet all of the qualifications for an IRA distribution for a first-time homebuyer. Your plan administrator is required to notify you before making a distribution from your 401(k) plan whether that distribution is eligible to be rolled over into an IRA. To see if you qualify for a distribution to be used as a first-time homebuyer, refer to Publication 590 (PDF), Individual Retirement Arrangements (IRAs) .
References: 17.3 Individual Retirement Arrangements (IRA): Roth IRA Do I report my nondeductible Roth IRA contributions on Form 8606?
There are no forms to report a Roth contribution. The financial institution, which is the trustee of your Roth IRA, will send you information on the amount in your Roth IRA. They will also send the information to the Internal Revenue Service. Use Form 8606 (PDF), Nondeductible IRAs and Coverdell ESAs, if you made a nondeductible contribution to a traditional IRA; converted from a traditional IRA, a SEP, or Simple IRA to a Roth IRA, received a distribution from a traditional IRA, a SEP, or a Simple IRA and made nondeductible contributions to a traditional IRA, or received a distribution from a Roth or Education IRA.
References: Can a person make a contribution to a SEP-IRA and a Roth IRA, too?
Yes, you can make a contribution to a SEP-IRA and a Roth IRA.
References: 17.4 Individual Retirement Arrangements (IRA): Traditional IRA Can an individual who is contributing to a SEP-IRA also contribute to a traditional IRA?
Yes, if they meet certain requirements. A SEP-IRA is considered a retirement plan, so the Adjusted Gross Income (AGI) limitations have to be considered. If your AGI, which is computed after the SEP contribution, is in excess of those limits, then the IRA contribution that you make would be nondeductible. The information on the AGI limits is in Publication 590 (PDF), Individual Retirement Arrangements (IRAs) , in the section How Much Can I Deduct?
References: I want to establish a traditional individual retirement arrangement (IRA) for my spouse, and I need additional information. What is the most I can contribute to a spousal IRA during the tax year?
If both you and your spouse work and both have taxable compensation, each of you can contribute up to $3,000 (or the amount of each IRA owner's compensation, if less) to a separate traditional IRA. Even if one spouse has little or no compensation, up to $3,000 can be contributed to each IRA if combined compensation is at least equal to the amount contributed to both IRAs and you file a joint return. You can contribute $3,000 to a separate IRA for your nonworking spouse if you file a joint return. Your total contribution to both your IRA and the spousal IRA for this year is limited to the smaller of $6,000 or your taxable compensation. You cannot contribute more than $3,000 to either IRA for the year. If you are 50 or older in 2002, the most that can be contributed to your traditional IRA for 2002 is the lesser of:
- $3,500 (up from $2,000), or
- Your compensation that you must include in income.
For additional information, refer to Tax Topic 451, Individual Retirement Arrangements (IRAs), or Publication 590 (PDF), Individual Retirement Arrangements (IRAs) .
References: Can I take an IRA deduction for the amount I contributed to a 401(k) plan last year?
No. A 401(k) plan is not an IRA. However, the amount you contributed is not included as income in box 1 of your W-2 form so you don't pay tax on it for 2002. For more information, refer to Tax Topic 424, 401(k) Plans, Publication 575 (PDF), Pension and Annuity Income, or Publication 560 (PDF), Retirement Plans for Small Business.
References: If I am covered by a employer sponsored retirement plan for part of the year, but work the rest of the year for an employer without a retirement plan, how much of my earnings may I deduct for a traditional IRA?
The amount you can deduct will be determined by your modified Adjusted Gross Income (AGI) and filing status. For specific information refer to Publication 590 (PDF), Individual Retirement Accounts (IRAs).
References:
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