What is the penalty for taking money out of a SAR-SEP?
September 11, 2002
From: John
Date: Tue, 6 Aug 2002
What is the penalty for taking money out of a SAR-SEP?
Answer
Date: 30 Aug 2002
Hello John,
A SAR-SEP is a Salary-Reduction Simplified Employee Pension. They were generally repealed when SIMPLE plans were enacted, so new SAR-SEPs may not be established after December 31, 1996.
The retirement account in which the funds are held is a type of IRA, so early withdrawals are treated like an early distribution from an IRA. The federal penalty is 10%.
There are exceptions for distributions to certain unemployed individuals up to the amount paid for qualifying medical insurance premiums, certain qualified higher education expenses, and certain first-time homebuyer expenses. You should see a tax advisor if you think you might qualify for an exception.
The early distribution and related penalty are reported on Federal Form 5329.
Good luck!
Mike Gray
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