Submitted By: someone
Answered: September 1, 2022 3:56 am

Is the early withdrawal penalty from an IRA CD tax deductible?

If your IRA holds a CD and you cash it in early, the bank may charge you an early withdrawal fee. Because the fee merely reduces the funds within your IRA, there’s no tax deduction. If you take a distribution from your IRA related to the CD, you are subject to usual IRA distribution/taxation rules. Thus, if you’re under age 59½, there’s a 10% early distribution penalty from the federal government (unless you qualify for a penalty exception). This penalty is not tax deductible.

Tax Glossary

Legally separated

A husband and wife who are required to live apart from each other by the terms of a decree of separate maintenance. Payments under the decree are deductible by the payor and taxable to the payee as alimony.

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