Taxation: IRAs FAQs

Internal Revenue Service
  • If we cash in an IRA account while in our 30s, what forms do we need to fill out?

  • If we cash in an IRA account while in our 30s, when do we pay the taxes and penalties ?

  • How long do I have to roll over a retirement distribution to an IRA account?

  • Do I report my nondeductible Roth IRA contributions on Form 8606?

    Q: If we cash in an IRA account while in our 30s, what forms do we need to fill out?

    A: You will need to file a Form 1040 and show the amount of withdrawal from your IRA. Since you took the withdrawal before reaching age 59 1/2, unless you meet certain exceptions listed in Publication 590, Individual Retirement Arrangements (IRAs) (Including Roth IRAs and Education IRAs), you will need to pay a 10 percent additional tax on early distributions from qualified retirement plans, which is reported on line 53 of Form 1040. You need to complete Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts and MSAs and attach it to the tax return.

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    Q: If we cash in an IRA account while in our 30s, when do we pay the taxes and penalties?

    A: Because our tax system is a pay-as-you-go system, you may need to make an estimated tax payment by the due date for the quarter in which you received the distribution. When calculating your tax liability to determine whether you need to make an estimated tax payment, your total tax for the year should include the amount of the 10 percent additional tax on early distributions from qualified retirement plans, unless an exception applies.

    You would calculate the tax on Form 1040-ES, Estimated Tax for Individuals, and any 10 percent additional tax on early distributions from qualified retirement plans on Form 5329, Additional Taxes Attributable to IRAs, Other Qualified Retirement Plans, Annuities, Modified Endowment Contracts, and MSAs.

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    Q: How long do I have to roll over a retirement distribution to an IRA account?

    A: You must complete the rollover by the 60th day following the day on which you receive the distribution. (This 60-day period is extended for the period during which the distribution is in a frozen deposit in a financial institution.) The issuer of the distribution must give you a written explanation of the rollover.

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    Q: Do I report my nondeductible Roth IRA contributions on Form 8606?

    A: There are no forms to report a Roth contribution. The financial institution trustee of your Roth IRA will send you information on the amount in your Roth IRA. They will also send the information to the Internal Revenue Service. Use Form 8606, Nondeductible IRAs, if you made a nondeductible contribution to a traditional IRA, converted from a traditional IRA to a Roth IRA, received a distribution from a traditional IRA and made nondeductible contributions, or received a distribution from a Roth or Education IRA.

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    Information courtesy of the Internal Revenue Service.
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