The 6% Tax
You can get penalized 6% for excess contributions and ineligible rollover amounts.
Tip: If you make a mistake, correct the mistake before you file taxes or refer to IRS Form 5329.
The 10% Tax
Unless you have a qualified exception, taking money out of your IRA before the age of 59 ½ will trigger a 10% early distribution penalty.
Tip: See if you qualify for an exception which is listed on 1099-R, an IRS form to report distributions, in box seven.
The 50% Tax
For the year IRA owners reach 70.5, you must start taking required minimum distributions (RMD). The IRA includes SEP, SIMPLE, Traditional and Rollover IRA. Missing the RMD deadline will incur a 50% excess accumulation penalty on the shortfall.
Tip: If you miss the deadline, correct the mistake by December 31 or file IRS form 5329 and request a waiver. The IRS are kind people so a phone call to explain a “reasonable cause” may help out.
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