Icon

Savings and Investing

Life Changes

What if I want to take money out before I retire?

It can be tempting to take money out of your retirement account for an unexpected expense. But it’s not a good idea to tap into your retirement savings because you’ll be putting your financial security at risk.

You may need to pay an additional 10% in taxes.

Icon is an Individual Retirement Account (IRA), tax-advantaged retirement savings account regulated by the IRS. By law you can take money out at any time. However, the amount you take out will be included in your taxable income, and you’ll have to pay an additional 10% tax if you’re under age 59 1/2. That tax penalty is in addition to your normal federal and state income taxes.

There are notable exceptions to this rule.

There are multiple cases when you are exempted from paying penalties for early withdrawals. To be exempt from paying that additional tax, you must qualify for one of the following and complete IRS Form 5329:

  • Medical expenses that will not be reimbursed
  • Permanent disability
  • Beneficiary disbursements
  • Qualified higher education costs
  • First home costs
  • IRS levy
  • Qualified reservist early distribution

If your distribution falls into one of these categories, talk to a tax professional and be sure to use IRS Form 5329. The IRS provides more details here.

Why do I have to pay a tax penalty on money?

You may be wondering why you must pay an early withdrawal penalty on money that is rightfully yours. Well, the IRS provides you with tax benefits associated with retirement plans. As part of the agreement to provide you with these tax benefits, the IRS wants to ensure you keep the money in your retirement account unless it is absolutely necessary to remove it.

NEXT UP The impact of high fees on savings How much can I contribute to my plan? What’s an ETF? Why Asset Allocation Matters Everything you Need to Know about Icon’s Fees What investments are available through Icon? Why do I need to answer a suitability questionnaire My employer is offering Icon. How does it work? Employer matching contributions–Don’t leave anything behind! Auto-escalation–A great idea The impact of high fees on savings How much can I contribute to my plan? Find out why it’s important to review your statement Save early and often What’s an ETF? High fees can erode your savings Annuities–What you need to know The basics of stocks and bonds Why Asset Allocation Matters The Savers Tax Credit – Are you taking advantage of it? What is a health savings account? A close look at Social Security Student loans feel like a weight When can I use my savings in retirement ? Emergency Savings Plan – What’s your plan? Do you receive a Form 1099? What you need to know Paying taxes as an independent contractor What if I want to take money out before I retire? What happens if I get fired or laid off? Naming a beneficiary What do I do with my 401(k) when I change jobs? Thinking of consolidating old 401(k) plans? Reserve mortgages, how do they work? Disability insurance, a great safety net Why it’s a good idea to have a will Using your home equity–Things to consider A close look at Social Security Student loans feel like a weight Emergency Savings Plan – What’s your plan? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire? What if I want to take money out before I retire?