There are times when a quick infusion of cash is needed to take care of personal or business obligations or that surprise expense. It is always tempting to use those retirement funds that are just sitting there, sometimes doing nothing (in some cases). WHAT YOU NEED TO KNOW: If you are under the age of 59 ½, taking a distribution from an IRA, 401k or other retirement account (Early Distribution) can be some of the most expensive money you every used. Other than for certain specific exceptions, funds you withdraw from a retirement account are going to be subject to not only Federal and state income taxes but also a Federal and state additional taxes on the Early Distribution. Exceptions to the Early Withdrawal or “Penalty” tax are listed on a Reference Table at the end of this newsletter: There are two levels of cost. The immediate (or at the time you file your tax return) tax cost, and then the opportunity cost of the loss of retirement plan equity and it’s earning potential.
