Did you know….taking money out early from your retirement plan can cost you an extra 10 percent in taxes?

An early withdrawal normally means taking money from your plan, such as a 401(k), before you reach age 59½. Remember to report the amount you withdrew from your retirement plan to the IRS. You may have to pay an additional 10 percent tax on your withdrawal. This additional 10 percent tax normally does not apply to nontaxable withdrawals. Nontaxable withdrawals include withdrawals of your cost in participating in the plan. Your cost includes contributions that you paid tax on before you put them into the plan.

If you transfer a withdrawal from one qualified retirement plan to another within 60 days, the transfer is a rollover. Rollovers are not subject to income tax and the added 10 percent tax also does not apply to a rollover. There are other exceptions to the additional 10 percent tax: withdrawals if you have certain medical expenses or if you are disabled. Some of the exceptions for retirement plans are different from the rules for IRAs.