IRS Publication 590-B: What It Is, How It Works

What Is IRS Publication 590-B?

IRS Publication 590-B explains the tax implications of withdrawing money from any type of individual retirement account (IRA), before or after retirement. It specifies when you can't withdraw money without paying a penalty and when you must withdraw money.

The publication includes three chapters, several appendixes, and worksheets to assist the taxpayer. Publication 590-A covers the tax rules for contributing to retirement accounts.

Understanding IRS Publication 590-B

There are several types of IRAs, including the traditional IRA and the Roth IRA, the SEP, and the SIMPLE IRA. But the biggest distinction is between the traditional and the Roth IRA:

• A traditional IRA permits a taxpayer to contribute pretax earnings up to a certain amount each year. The wage-earner gets an immediate tax break, and taxes on the amount paid into the account are deferred until the taxpayer withdraws money.
• A Roth IRA allows a taxpayer to contribute post-tax earnings up to a certain amount each year. The wage-earner pays the income taxes upfront, so withdrawals taken after retirement won't be taxed.

IRS Publication 590-B is organized to explain the different tax implications of the traditional and Roth types of IRA accounts:

Chapters 1 and 2

Chapters 1 and 2 of IRS Publication 590-B explain all the rules for the traditional IRA and the Roth IRA, respectively. Chapter 1 covers when you can withdraw money and at what age you must withdraw money. It also includes penalties for early withdrawals from traditional IRAs.

Chapter 3

Chapter 3 covers permitted early withdrawals used to pay for damage caused by natural disasters. As of the latest IRS Publication 590-B, for 2023 tax returns, a qualified disaster recovery distribution must meet certain criteria as described in the SECURE 2.0 Act of 2022. Section 331 of the latest SECURE Act allows victims of a qualified natural disaster to withdraw up to $22,000 from their retirement account without penalty. The withdrawal is treated as gross income over three years without penalty (effective as of the passage of the bill). All such distributions require repayment of the money to avoid a penalty later.

Introduction

An introductory section includes a table clarifying the differences between traditional and Roth IRAs, rules for required distributions, taxation of these accounts, and regulations for filing Form 8606 for non-deductible IRAs. This is the form that must be filed to report distributions from any type of IRA.

Final Sections

A later section provides general information on getting help with tax-related issues.

Appendix A is a worksheet for determining your required minimum distribution (RMD), and Appendix B contains a life expectancy table needed to calculate RMDs.

Penalties and Exemptions in Publication 590-B

Keep an eye on the penalties detailed in Publication 590-B, and the exceptions to those penalties.

For example, most early distributions trigger a 10% penalty. The penalty goes up to 25% if money is withdrawn during the first two years of participation in a SIMPLE IRA. However, a withdrawal for qualified higher education expenses or first-time home purchase isn't subject to the penalty.

Other Useful IRS Publications

The IRS has numerous publications explaining the ins and outs of qualified retirement plans.

• If you run a small business or work for one, you may be interested in IRS Publication 560: Retirement Plans for Small Business.
• Another IRS publication, Retirement Plans, has extensive information on types of retirement plans and retirement plan administration.
• An IRS FAQs page contains brief information about the various types of IRAs and their tax implications.

The Bottom Line

IRS Publication 590-B spells out the tax implications of withdrawing money from an IRA before or after you retire. The publication comprises three chapters, several appendixes, and worksheets to assist the taxpayer. Publication 590-A covers the tax rules for contributing to retirement accounts. The publication also outlines the penalties for early withdrawal of IRA funds, and the exceptions to those penalties.