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.

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Tax Glossary

Adjusted basis

A statutory term describing the cost used to determine your profit or loss from a sale or exchange of property. It is generally your original cost, increased by capital improvements, and decreased by depreciation, depletion, and other capital write-offs.

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