Previous Page: Publication 590 - Individual Retirement Arrangements (IRAs) - Can You Move Retirement Plan Assets? Next Page: Publication 590 - Individual Retirement Arrangements (IRAs) - When Must You Withdraw Assets? (Required Minimum Distributions) Use   to find additional occurrences of topic items.

taxmap/pubs/p590-010.htm#TXMP1424b6a2 When Can You Withdraw or Use Assets?(p32)

Retirement Plan, Assets

You can withdraw or use your traditional IRA assets at any time. However, a 10% additional tax generally applies if you withdraw or use IRA assets before you are age 591/2. This is explained under Age 591/2 Rule under Early Distributions, later.

You generally can make a tax-free withdrawal of contributions if you do it before the due date for filing your tax return for the year in which you made them. This means that, even if you are under age 591/2, the 10% additional tax may not apply. These withdrawals are explained next.

taxmap/pubs/p590-010.htm#TXMP6f46768b Contributions Returned  Before Due Date of Return(p33)

Contributions Returned Before Due Date of Return

If you made IRA contributions in 2007, you can withdraw them tax free by the due date of your return. If you have an extension of time to file your return, you can withdraw them tax free by the extended due date. You can do this if, for each contribution you withdraw, both of the following conditions apply.

• You did not take a deduction for the contribution.
• You withdraw any interest or other income earned on the contribution. You can take into account any loss on the contribution while it was in the IRA when calculating the amount that must be withdrawn. If there was a loss, the net income earned on the contribution may be a negative amount.

In most cases, the net income you must withdraw is determined by the IRA trustee or custodian. If you need to determine the applicable net income on IRA contributions made after 2007 that are returned to you, use Worksheet 1-4. See Regulations section 1.408-11 for more information.

taxmap/pubs/p590-010.htm#TXMP794b8b03
Example.(p33)

On May 1, 2008, when her IRA is worth $4,800, Cathy makes a $1,600 regular contribution to her IRA. Cathy requests that $400 of the May 1, 2008, contribution be returned to her. On February 2, 2009, when the IRA is worth $7,600, the IRA trustee distributes to Cathy the $400 plus net income attributable to the contribution. No other contributions have been made to the IRA for 2008 and no distributions have been made.

The adjusted opening balance is $6,400 ($4,800 + $1,600) and the adjusted closing balance is $7,600. The net income due to the May 1, 2008, contribution is $75 ($400 x ($7,600 – $6,400) ÷ $6,400). Therefore, the total to be distributed on February 2, 2009, is $475. This is shown on the following worksheet. taxmap/pubs/p590-010.htm#w15160x05

Worksheet 1-4. Example—Illustrated 1. Enter the amount of your IRA contribution for 2008 to be returned to you. 1. 400 2. Enter the fair market value of the IRA immediately prior to the removal of the contribution, plus the amount of any distributions, transfers, and recharacterizations made while the contribution was in the IRA. 2. 7,600 3. Enter the fair market value of the IRA immediately before the contribution was made, plus the amount of such contribution and any other contributions, transfers, and recharacterizations made while the contribution was in the IRA 3. 6,400 4. Subtract line 3 from line 2. 4. 1,200 5. Divide line 4 by line 3. Enter the result as a decimal (rounded to at least three places). 5. .1875 6. Multiply line 1 by line 5. This is the net income attributable to the contribution to be returned. 6. 75 7. Add lines 1 and 6. This is the amount of the IRA contribution plus the net income attributable to it to be returned to you. 7. 475

taxmap/pubs/p590-010.htm#TXMP4ae8d0cf Last-in first-out rule.(p34)

If you made more than one regular contribution for the year, your last contribution is considered to be the one that is returned to you first.

taxmap/pubs/p590-010.htm#TXMP6565bc7a Earnings Includible in Income(p34)

Earnings Includible in Income

You must include in income any earnings on the contributions you withdraw. Include the earnings in income for the year in which you made the contributions, not the year in which you withdraw them.

Generally, except for any part of a withdrawal that is a return of nondeductible contributions (basis), any withdrawal of your contributions after the due date (or extended due date) of your return will be treated as a taxable distribution. Excess contributions can also be recovered tax free as discussed under What Acts Result in Penalties or Additional Taxes, later.

taxmap/pubs/p590-010.htm#TXMP229b7777 Early Distributions Tax(p34)

Penalty, Early Distributions from IRAs and Plans

The 10% additional tax on distributions made before you reach age 591/2 does not apply to these tax-free withdrawals of your contributions. However, the distribution of interest or other income must be reported on Form 5329 and, unless the distribution qualifies as an exception to the age 591/2 rule, it will be subject to this tax. See Early Distributions under What Acts Result in Penalties or Additional Taxes, later.

taxmap/pubs/p590-010.htm#TXMP5358c7bd Excess Contributions Tax(p34)

Excess Contributions Tax

If any part of these contributions is an excess contribution for 2006, it is subject to a 6% excise tax. You will not have to pay the 6% tax if any 2006 excess contribution was withdrawn by April 17, 2007 (plus extensions), and if any 2007 excess contribution is withdrawn by April 15, 2008 (plus extensions). See Excess Contributions under What Acts Result in Penalties or Additional Taxes, later.

You may be able to treat a contribution made to one type of IRA as having been made to a different type of IRA. This is called recharacterizing the contribution. See Recharacterizations earlier for more information.

Previous Page:  Publication 590 - Individual Retirement Arrangements (IRAs) - Can You Move Retirement Plan Assets? Next Page:  Publication 590 - Individual Retirement Arrangements (IRAs) - When Must You Withdraw Assets? (Required Minimum Distributions) Use   to find additional occurrences of topic items.