Consequences of liquidating ira
Consequences of liquidating ira - end dating by text
Earnings must remain in your Roth IRA for at least five years to qualify for tax-free withdrawal once you reach retirement age.If you must liquidate the earnings portion of your Roth IRA prior to reaching age 59 1/2, the earnings portion of your withdrawal will be taxed as ordinary income at your current tax rate.
Tax consequences for liquidating your Roth IRA are dependent on such factors as your age, the nature of the funds being withdrawn, and the time period the funds have been in the account.
The withdrawal may also be subject to an additional penalty tax of 10 or even 25 percent.
The penalty tax kicks in when you take a distribution before reaching a certain age, usually 59½, although there are some exceptions to this additional tax.
The funds in a Roth IRA grow tax free, and withdrawals of contributions are always made tax-free.
The earnings portion of your Roth IRA become qualified after being in the account for at least five years.
Generally, early withdrawal from an Individual Retirement Account (IRA) prior to age 59½ is subject to being included in gross income plus a 10 percent additional tax penalty.
There are exceptions to the 10 percent penalty, such as using IRA funds to pay your medical insurance premium after a job loss.You can figure the additional tax directly on your Form 1040, or you can use Form 5329.Your best option depends on your particular tax situation.Exceptions for early distributions from IRAs include: You cannot have owned a home in the previous two years to qualify for the home-buying exclusion, and only ,000 of the retirement distribution will avoid the tax penalty.You don't have to itemize on your tax return to claim the medical expense exception.Generally, you would calculate the additional tax penalty on Form 5329 if you qualify for one of the exceptions and your retirement plan did not report the exception on Form 1099-R in box 7.