| There are a variety of qualified savings | | | | from ESAs, IRAs, and HSAs. It also reports |
| retirement fund plans available to taxpayers. | | | | additional taxes on excess accumulations in |
| Some like traditional and Roth Individual | | | | qualified retirement plans when contributions |
| Retirement Arrangements (IRAs) are specifically | | | | exceeded IRS rules. If you receive, for example, |
| designed for a taxpayer's retirement years. | | | | a IRS Form 1099-R and Box 7 shows a code 1 |
| Others, like a health (or medical) savings accounts | | | | (early distribution without exception) or code 2 |
| (HSA/MSA) and (Coverdell) Education Savings | | | | (early distribution with exceptions), you might be |
| Accounts (ESA) are established for specialized | | | | subject to an additional 10% tax penalty in |
| needs such as medical or educational expenses | | | | addition to the income taxes levied on the |
| respectively. According to the Internal Revenue | | | | additional income resulting from the distribution. A |
| Service (IRS), you can contribute or add money | | | | Form 1099-INT also reports an early withdrawal |
| to these funds oftentimes on a tax-deferred | | | | penalty amount. For example, if you receive a |
| basis. These qualified contributions typically have | | | | Form 1099-R with code 1 in Box 7, there are no |
| some incentivized tax treatment; they either | | | | exceptions to the early withdrawal penalty and |
| reduce taxable income (like an IRA) or provide a | | | | you will be charged a 10% penalty that will be |
| tax credit (like a Saver's Tax Credit). However, | | | | computed in Part I of IRS Form 5329. You also |
| there are strict rules regarding the withdrawal or | | | | file Form 5329 to report regular, or rollover |
| distribution of these same funds. You might | | | | conversions from one type of qualified retirement |
| receive preferential tax treatment if you make a | | | | fund to another. |
| contributions to these funds but be warned; you | | | | Tax and financial implications of what might |
| could be taxed most likely at your marginally | | | | appear to be simple transfers of "your money" |
| income tax rate AND suffer "early withdrawal" | | | | can be VERY complicated especially if they violate |
| penalties if you drawn down these funds "before | | | | IRS rulings and regulations. Consult a practiced tax |
| their time" or for any reasons other than for | | | | professional if possible BEFORE you take any |
| those for which they were originally intended. | | | | financial action. There are ways to avoid penalty |
| IRS Form 5329, Additional Taxes on Qualified | | | | fees under qualifying circumstances. If you have |
| Plans (including IRAs) and Other Tax-Favored | | | | received distributions from any of these plans and |
| Accounts is an eight-part tax form that calculates | | | | an IRS Form 1099-R, have a tax professional |
| additional taxes on early distribution, distributions | | | | review your tax returns. |