Good question, and we’re here to help. While Acorns can’t give specific tax advice, we will provide as much information as we can. If you still have questions, it’s best to consult a tax professional or irs.gov.
Taxes related to IRAs are unique to each plan and individual. Below, we’ll outline the potential tax implications per Acorns Later IRA plan.
Traditional IRA
For traditional IRA plans, you contribute "pre-tax dollars" — money you've earned and have already paid income taxes on. Because you’ve already paid taxes on it, you may be able to deduct your contributions from your tax bill today, lowering your taxes. Then, you'll pay income taxes when you withdraw it in retirement.
If you withdraw funds before the minimum distribution age, you may face a 10% penalty, as well as regular income tax.
SEP IRA
Simplified Employee Pension (SEP) IRA plans — the account for side giggers and other self-employed people — works basically the same as a traditional IRA. Any money withdrawn before the minimum distribution age may face a 10% penalty, as well as regular income tax.
Roth IRA
With Roth IRAs, you contribute "post-tax dollars" —meaning you’ve already paid taxes on the money you contribute to the IRA. So, you won’t owe those taxes in retirement.
If you want to withdraw money before you're the minimum distribution age, you can tap your contributions anytime without penalty.
But, if you withdraw any investment earnings (a.k.a. the market returns your invested money has generated) before the minimum distribution age or before you’ve had your account open for at least five years, you’ll generally owe income tax, plus the 10% penalty.
Later Match
If you withdraw any contribution before the 4-year holding period is up, Acorns will automatically remove the match amount you received. Since the match will be removed, you won’t owe taxes on the match.
If you withdraw your match after the 4-year holding period is up, owing taxes depends on your IRA type.
- Traditional IRA: You'll owe taxes on the match because it's considered earnings
- Roth IRA: The match will be tax-free at retirement (age 59 1/2 & account open for at least 5 years)
- SEP IRA: You'll owe taxes on the match because it's considered earnings
For more information on our Later Match 4-year holding period, check out this FAQ: Is there a specific holding period in order for me to keep the Later Match?
Heads up, you may owe taxes if you withdraw from your Acorns Later retirement account before you reach age 59 1/2 — but it depends on a few factors. Learn more here.
Acorns does not provide tax advice, and this information is not a full presentation of tax regulations that may be applicable to match amounts or any Acorns Later retirement account. Please consult a tax advisor for individualized advice.
What are the exceptions?
Sometimes the IRS will waive a tax penalty for early withdrawals. We’ve listed some of the exceptions below, and you can learn more from the IRS website.
Qualified Reservist Distributions (QRDs) - These are for military members who were called into active duty from the reserves for over 180 days.
Disability - The IRS defines disability as “total and permanent disability of the IRA owner.” To qualify for this exemption, your condition must prevent you from working.
Death - Please contact us if you are the beneficiary or trustee of an Acorns Later account. Legal documents may be required.
Education - IRA funds may sometimes be withdrawn without tax penalty for higher education expenses. Talk to a tax specialist about your options.
Medical - The IRS splits medical exemptions into two categories: unreimbursed medical expenses and medical insurance if you are unemployed.
Important tax information
If you make a withdrawal or choose to close your account, you may receive important tax forms from Acorns that you'll need for filing your taxes. We'll email you more information when it's close to tax time, or you can check for tax forms under Settings.
Your tax situation is unique, so you may want to consult a tax advisor or visit www.irs.gov with any questions before making a withdrawal or removing funds. Acorns cannot provide tax advice.
If you have any questions or concerns about your Later account, please don’t hesitate to contact us.
Grow your oak!
Comments
0 comments
Article is closed for comments.