How to Draw an IRA Early
To prevent people from using traditional individual retirement accounts for purposes other than saving for retirement, the IRS imposes a 10 percent early withdrawal penalty on non-qualified distributions before you reach age 70 1/2. There are a few circumstances that allow you to withdraw the money early without penalty, such as medical bills exceeding 7.5 percent of your adjusted gross income, if you become permanently disabled, or up to $10,000 for a first time home purchase. Anyone is allowed to take an early withdrawal by filling out the requested distribution form provided by your financial institution. However, when you take an early distribution, you must report it on your taxes by filing using Form 1040 or 1040 NR and attaching Form 5329.
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Instructions
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1
Request the early distribution by filling out the appropriate form from the financial institution that manages your IRA.
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2
Enter the total of your early IRA withdrawals on line 1 of Form 5329. This includes both qualified and non-qualified withdrawals.
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3
Enter the total amount of qualified withdrawals on line 2. You must also enter the code for reason or reasons for the withdrawal counting as qualified in the space provided next to line 2. For example, early withdrawals for higher education expenses use the code "08." The complete list is in the Form 5329 instructions, available from the IRS. If none of your withdrawal is qualified, write "0."
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4
Subtract line 2 from line 1 and write the result on line 3. If the number is greater than zero, you will owe a penalty. If the amount is zero, skip step 5.
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5
Multiply the amount on line 3 by 0.1 to calculate the amount of you will have to pay as an early withdrawal penalty. Write this amount on line 4 of From 5329 and either line 58 if you use Form 1040 or line 54 if you use Form 1040 NR. For example, if $10,000 if your distribution is non-qualified, you will have to pay a $1,000 penalty.
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6
Write the amount of your IRA withdrawal on line 15 of Form 1040---traditional IRA contributions are made using pretax dollars so you must include them as part of your taxable income for the year.
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