Government Shutdown: Are You on Furlough and Thinking About Taking an IRA Distribution?
By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott
If you are on furlough thanks to the government shutdown and thinking about taking a distribution from your IRA, here are some things you need to know.
There is no such thing as a hardship distribution from an IRA. Generally, funds you take from your IRA will be subject to income tax and the 10% early distribution penalty, if applicable. If there are after-tax funds in any of your IRAs, your distribution will include some of your after-tax amounts. You must file IRS Form 8606 with your tax return to calculate the amount of any distributions that are income tax free.
Distributions can be rolled over within 60 days. You have 60 days from the date you receive IRA funds to replace them in the same IRA or a different IRA. However, you can only make such a rollover IF you have not done another 60-day rollover in the past 12 months either into or out of the IRA making the distribution. IRS can grant an extension of the 60-day rollover period under certain circumstances. There is a fee of $500 - $3,000 to apply for an extension. That is just the IRS fee. If you use a professional to prepare the waiver request, there will be additional fees. If you miss the rollover deadline, the distribution will be taxable and, if applicable, the 10% early distribution penalty will apply.
Exceptions to the 10% Early Distribution Penalty for IRAs:
72(t) (substantially equal periodic payments)
Higher Education Expenses
First-Time Home Buyer
Health Insurance if you are Unemployed
If your distribution from the IRA qualifies for any of these exceptions and you are under age 59 ½, you will not have to pay the 10% early distribution penalty. Income tax will still be owed on the distribution. You can find more information on all of these exceptions to the penalty in IRS Publication 590. It is available on the IRS website, www.irs.gov. The website continues to be available during the government shutdown. To claim most of these exceptions, the IRA owner must file IRS Form 5329 with their tax return.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to firstname.lastname@example.org for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at email@example.com or (516) 536-8282 with any questions.