Thanks to the exceptions that apply to early distributions, you don’t have to undergo a taxing experience in order to get an early distribution for an IRA (Individual Retirement Arrangement) or another type of qualified retirement plan. The first thing that you must understand is that any payment that is received by you from your IRA or qualified required retirement plan before you are 59.5-years-old are known as either an “early” or “premature” distribution. This means that these funds will be subject to an additional tax of 10%. Of course, there are numerous exceptions to this rule that you should learn about if you need to make this type of a withdrawal. While some of these exceptions will only apply to an IRA, others will only apply to a qualified retirement plan and still others will apply to both of these. You can learn more about these exceptions in IRS Publications 575 (for pensions and annuities) and 590 (for individual retirement arrangements).

Besides paying this additional 10% tax on any early distributions, you will also have to pay more in the way of your regular taxable income. This is true whenever you have any attributions that are attributable to “elective deferrals,” to which you have contributed from your pay, to which your employer has contributed or that have earned any money. If you have made any nondeductible contributions they will not be taxed since you have already paid taxes on this money.

One way in which you can avoid paying taxes on early distributions is by doing what is known as a “rollover.” This is a tax-free transfer of cash and other assets from your IRA or qualified retirement plan to a retirement plan that is considered “eligible.” A traditional IRA or a qualified annuity plan are both considered “eligible.” You will need to complete this rollover within 60 days from the date that you have received the distribution however. The money that is rolled over will then be taxed whenever you or your beneficiary are paid by the new plan.

Your plan administrator will also withhold 20% in taxes whenever you receive an early distribution that is paid directly to you from your employer’s plan. Otherwise you will have to pay taxes on that amount. If you would like to avoid this inconvenience, then you will need to have your old plan’s administrator transfer the rollover amount directly to your new plan.

Any early distribution will need to be reported to the IRS. Whenever you are filling out a Form 1040 you will report your tax-free rollovers on lines 15a and 16a. Any taxable amounts that you don’t roll over will need to be entered on either line 15b or 15b.