Can I take money from my traditional IRA, or my SEP or SIMPLE IRA, while I am still working?
You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you’re under age 59 1/2. The additional tax is 25% if you take a distribution from your SIMPLE-IRA in the first 2 years you participate in the SIMPLE IRA plan. There is no exception to the 10% additional tax specifically for hardships. See chart of exceptions to the 10% additional tax.
Do I request the distribution check directly from my employer or from the financial institution where contributions to my SEP or SIMPLE IRA are invested?
You will need to contact the financial institution holding your IRA assets.
If I withdraw money from my IRA before I am age 59 1/2, which forms do I need to fill out?
Regardless of your age, you will need to file a Form 1040 and show the amount of the IRA withdrawal. Since you took the withdrawal before you reached age 59 1/2, unless you met one of the exceptions listed in Publication 590-B, you will need to pay an additional 10% tax on early distributions on your Form 1040. You may need to complete and attach a Form 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to the tax return. Certain distributions from Roth IRAs are not taxable.
Can I deduct the 10% additional early withdrawal tax as a penalty on early withdrawal of savings?
No, the additional 10% tax on early distributions from qualified retirement plans does not qualify as a penalty for withdrawal of savings.
Will I have to pay the 10% additional tax on early distributions if I am 47 years old and ordered by a divorce court to take money out of my traditional IRA to pay my former spouse?
Yes. Unless you qualify for an exception, you must still pay the 10% additional tax for taking an early distribution from your traditional IRA even if you take it to satisfy a divorce court order (Internal Revenue Code section 72(t)). The 10% additional tax is charged on the early distribution amount you must include in your income and is in addition to any regular income tax from including this amount in income. Unlike distributions made to a former spouse from a qualified retirement plan under a Qualified Domestic Relations Order, there is no “divorce” exception to the 10% additional tax on early distributions from IRAs.
The only divorce-related exception for IRAs is if you transfer your interest in the IRA to a spouse or former spouse, and the transfer is under a divorce or separation instrument (see IRC section 408(d)(6)). However, the transfer must be done by:
- changing the name on the IRA from your name to that of your former spouse (if transferring your entire interest in that IRA), or
- a trustee-to-trustee transfer from your IRA to one established by your former spouse. Note: an indirect rollover doesn’t qualify as a transfer to your former spouse even if the distributed amount is deposited into your former spouse’s IRA within 60-days.
How long do I have to roll over a distribution from a retirement plan to an IRA?
You must complete the rollover by the 60th day following the day on which you receive the distribution. You may be eligible for an automatic waiver of the 60-day rollover requirement if a financial institution caused the error and other conditions are met. See Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) and Retirement Plans FAQs relating to Waivers of the 60-Day Rollover Requirement.