Series 6
Retirement and College Savings Plans - Distribution/Withdrawl Rules
Withdrawals From Qualified Retirement Plans
The taxation of withdrawals are similar to those from an IRA. Withdrawals prior to reaching the age of 59.5, are subject to a 10% tax penalty, as well as ordinary income taxes. There are some exceptions to that 10% penalty:
Required Minimum Distribution Rules
The IRS requires distributions to begin from qualified plans (and IRAs) by the Apr 1 of the year following your attainment of age 70.5 . The only exception to this requirement is for those who are still working and the exception applies only to the current employer's plan (not previous employer plans or IRAs). The amount that must be withdrawn is calculated by dividing the account balance by a life expectancy factor. A 50% tax penalty applies to amounts that should have been withdrawn but were not.
The taxation of withdrawals are similar to those from an IRA. Withdrawals prior to reaching the age of 59.5, are subject to a 10% tax penalty, as well as ordinary income taxes. There are some exceptions to that 10% penalty:
- The taxpayer becomes disabled.
- The employee retires after attaining age 55 (this exception applies only to withdrawals from the current company's plan - not previous employer plans or IRAs).
- Withdrawals are made in case of divorce, as part of a QDRO (Qualified Domestic Relations Order).
- The beneficiary withdraws funds from the plan after the employee's death.
- The employee needs money to cover medical expenses that are in excess of 7.5% of adjusted gross income.
- Withdrawals are made in a series of substantially equal periodic payments (SEPP) over the owner's life expectancy.
Required Minimum Distribution Rules
The IRS requires distributions to begin from qualified plans (and IRAs) by the Apr 1 of the year following your attainment of age 70.5 . The only exception to this requirement is for those who are still working and the exception applies only to the current employer's plan (not previous employer plans or IRAs). The amount that must be withdrawn is calculated by dividing the account balance by a life expectancy factor. A 50% tax penalty applies to amounts that should have been withdrawn but were not.
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