Q: Are there any Colorado penalties for withdrawing from a 401a account early and when does the IRS assess it's 10% penalty
Live in Colorado full time. Quit a job that had a 401a instead of paying into S.S. There's not a lot of money in the account and I could use the money to fix somethings around the house. My current job uses PERA for retirement instead of S.S. I know that the IRS will impose a 10% penalty for early withdraw. I need to know if Colorado will impose some kind of penalty and if so how much? I would also like to know if the IRS' penalty is imposed right when I withdraw the money or when I go to file my taxes next year?
Thank you,
N.L.
A:
There's no state level penalty, but you can generally exclude income as taxable to CO if you wait. Colorado FYI Publication 25 https://www.colorado.gov/pacific/sites/default/files/Income25.pdf
The federal penalty is imposed on your F1040 so you'll incur it when you file your return.
Exceptions to the additional 10% tax apply for early distributions that are:
Made to a beneficiary or estate on account of the IRA owner's death
Made because you're totally and permanently disabled
Made as part of a series of substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary
Qualified first-time homebuyer distributions
Not in excess of your qualified higher education expenses
Not in excess of certain medical insurance premiums paid while unemployed
Not in excess of your unreimbursed medical expenses that are more than a certain percentage of your adjusted gross income
Due to an IRS levy of the IRA under section 6331 of the Code, or
A qualified reservist distribution
IRS Topic 557 https://www.irs.gov/taxtopics/tc557
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