#Good news! The IRS has extended the tax deadline to April 18th! As long as you submit your federal return by midnight on 4/18/2018, you won't be considered a late filer for your federal return. Direct debit tax payments that are submitted with your federal return (or on the IRS website) by 4/18 are also considered timely filed ×

Why do I have to pay an additional tax on distributions from my own retirement accounts?

In general, you may need to pay an additional 10% tax on an early withdrawal from your retirement accounts. Normally this means withdrawals made before you reach age 59 ½. 

Go to this section in Credit Karma Tax: Income - Retirement Income (1099-R)

In most cases, box 7 of your Form 1099-R will show a code indicating the reason you received a distribution from your retirement account. Depending on the reason shown here, Credit Karma Tax will determine if you need to pay any additional tax on this amount.

When do I have to pay an additional tax on early distributions?

  • If you take a distribution from a retirement account before reaching age 59½, you may be subject to an additional tax equal to 10% of the amount withdrawn unless you qualify for an exception. This amount is in addition to any regular income taxes that may apply to the amount. Certain situations, usually associated with major life events, allow for an exception to the 10% additional tax.
  • If you take a distribution from an qualified accounts and do not use the money to pay qualified education expenses, you may be subject to the 10% additional tax.
  • You may have to pay additional taxes if your contributions exceed the contributions limit for retirement accounts, education savings accounts and health savings accounts. The additional tax is equal to 6% per year as long as the excess amount remains in the account.
  • Retirees who fail to take the required minimum distribution from their retirement account may also face an additional tax of 50% of the amount not distributed as required.

How can I avoid paying the additional tax on early retirement account distributions? Are there exceptions?

There are certain situations, usually associated with major life events, when you are allowed to withdraw funds from your retirement accounts without paying this penalty. Learn more about Exceptions to Tax on Early Distributions from the IRS.

You can enter the amount of your early distributions that can be excluded and enter a qualified reason by visiting the following page: Additional Tax on Early Distributions
Source: irs.gov

 

 

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