Retirement Account Mistakes That Could Cause Tax Problems
Before you choose to take money out of your retirement account, take the time to consult a tax advisor. There are many tricky rules with retirement accounts, writes Forbes, which can easily trigger unexpected penalties. If you don’t consult an expert and accidentally make an account withdrawal mistake, tax time could bring some unpleasant surprises. Here’s a list of five retirement account mistakes to avoid.
1. Hardship Distributions
“Your 401(k) retirement plan at work might allow you to take what’s known as a hardship distribution, even though you still work for the company and aren’t retirement age because of an emergency need. Many people think it’s a penalty exception, but it’s not,” says Forbes. In order to take penalty-free withdrawals from your retirement account, you typically have to be at least 59 1/2 (there are penalty exceptions such as disability.) Here’s an exception — if you incurred and paid for significant medical bills in the same year you took the hardship distribution (to the extent that you have deductible medical expenses that exceed 10 percent of your adjusted gross income), distributions that cover those expenses won’t be subject to the 10 percent early withdrawal penalty.