A:

Your options depend on the type of penalty that would apply.

If the penalty is a surrender charge or another penalty that would apply to an annuity or insurance product, you may want to consider leaving the assets in the plan until the time when the penalty will no longer apply. These penalties are not usually IRS-assessed penalties; rather, they are assessed by the company offering the product.

If the penalty is the 10% early-distribution penalty assessed by the IRS when an individual makes withdrawals before reaching age 59.5, then you may avoid that penalty by keeping the assets in the plan. If your plan is a 403(b) account, you may transfer the balance to a 403(b) account at another financial institution or roll over the amount to a Traditional IRA. These options are not taxable, and you will not be subject to the 10% penalty.

To learn more about this topic, read Taking Penalty-Free Withdrawals From Your IRA.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Are there penalties for withdrawing monies invested in annuities?

    Learn about the penalties associated with taking early withdrawals from an annuity. Steep penalties are assessed by the insurer ... Read Answer >>
  2. Does the IRS charge interest on penalties?

    Understand whether or not the IRS charges interest on penalties. Learn about the types of penalties that can be assessed ... Read Answer >>
  3. I have found myself unable to work at this time due to cancer, but it is temporary. ...

  4. How do you calculate penalties on an IRA or Roth IRA early withdrawal?

    Find out how to calculate the tax penalty on early IRA distributions, including why distributions from Roth accounts can ... Read Answer >>
  5. What is the penalty for withdrawing money from my Roth IRA?

    Learn what penalties are imposed when you withdraw money from your Roth IRA and under what conditions these penalties do ... Read Answer >>
  6. Can I take money out of my Individual Retirement Account (IRA) while working?

    Can I take money out of my IRA plan if I'm still working? Yes, you can take money out of your IRA plan if you’re ... Read Answer >>
Related Articles
  1. Retirement

    Your 401(k): Not the Best Emergency Fund

    If you have an emergency and need to access your retirement funds, you may have to pay a penalty if you dip into your 401(k). But there is a better option.
  2. Insurance

    How to Avoid Penalties When Postponing Medicare

    The rules and timing can be tricky; here's how to navigate them, without getting dinged by penalties.
  3. Retirement

    Tapping Retirement Funds Early – Without A Penalty

    The IRS offers several ways to skirt the 10% penalty on early retirement distributions.
  4. Retirement

    When a 401(k) Hardship Withdrawal Makes Sense

    If you've exhausted all other avenues, there are ways to withdraw funds before age 59½ – sometimes without the 10% penalty that's usually due.
  5. Retirement

    How a 403(b) Works After Retirement

    Everything you need to know (don't be afraid to ask) about handling your 403(b) plan when you retire.
  6. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  7. Credit & Loans

    Should I Use My IRA to Pay Off My Credit Cards?

    Cashing in an IRA to deal with outstanding credit card balances may not be the best way, but sometimes it's the best available way. Here's how.
  8. Retirement

    How Are 401(k) Withdrawals Taxed for Nonresidents?

    As a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
  9. Taxes

    Get a 6-Month Tax Extension

    Discover how to get some extra time from the IRS, without paying a hefty penalty for the privilege.
  10. Retirement

    Retirement Plan Tax Prep Checklist

    Here's a list of items you need to have in order by tax time, including paying attention to those pesky required minimum distributions.
RELATED TERMS
  1. Withdrawal Penalty

    Refers to any penalty incurred by an individual for early withdrawal ...
  2. Prepayment Penalty

    A clause in a mortgage contract that says if the mortgage is ...
  3. Withdrawal

    Removing funds from an account, plan, pension or trust. In some ...
  4. Penalty Repricing

    An increase in a credit card’s interest rate that occurs when ...
  5. Hardship Withdrawal

    An emergency withdrawal from a retirement plan that may be subject ...
  6. Excess Accumulation Penalty

    The penalty a retirement account owner or the beneficiary of ...
Hot Definitions
  1. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  2. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  3. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  4. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  5. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  6. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
Trading Center