Do I owe personal income taxes on a distribution I took from a financial company that was holding my retirement lump sum payment and I was losing alot of my funds from the market and so I took it out in mid-2009 and put it in a low interest-bearing CD at a bank. Do I pay taxes this year even though I re-invested the money in this CD almost immediately? I received a 1099-R from the financial company.

Was the CD in a another qualified account, that is, is it in an IRA? Or were the funds simply put into a non-qualified bank account earning a higher interest? If the latter is true, the entire distribution would appear to be taxable in 2009 along with a premature distribution penalty of 10% applied to the entire amount of the funds that were distributed from the qualified accounts.

The reason is that "the IRS imposes this penalty to deter individuals from taking premature distributions from their retirement accounts."

I am hoping that you transferred the retirement funds into another qualified fund that was an interest bearing fund. But, if you did not, you might still qualify for an exemption of the premature early distribution 10% penalty if you meet the IRS exception rules.

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It was put in a bank account CD earning a "lower interest" actually. But it wasn't an IRA. I lost alot of my retirement funds in an IRA already. So, I guess I will need to pay taxes on the entire distributed amount even though it is a low-interest-bearing; but at least I won't be losing any more moneyfrom here on. I won't need to pay the 10% early because I am over 59 1/2. Thank you for your reply. I just needed to know and I was having a hard time figuring that out by myself.