Hello spotter,
When you make a withdrawal from your IRA account, the amount you withdraw will be included in your taxable income for the year. In addition, if you are under the age of 59-1/2 at the time the withdrawal is made, you will owe an additional 10% penalty on the withdrawal. There are certain exceptions to the early withdrawal penalty, but only if the withdrawal is made for one of the following reasons:
Taking a withdrawal to pay off your husband's estate would not qualify for one of the early withdrawal exceptions.
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Thank you spotter and let me know if you have more questions.
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad
Hello again spotter,
That would not be an allowed exception to the early withdrawal penalty. So if you are under the age of 59-1/2 you would pay the regular taxes on the withdrawal, plus an extra 10% for the early withdrawal penalty. Paying off the daughters to settle the estate would not qualify to have the penalty not apply.
I am sorry, but where did you come up with 40%?
Did you mean 10% plus claim it as incmome on my taxes
Yes, that is exactly what it would be. The withdrawals would be included in your taxable income for the year, plus you would owe the 10% penalty.
The actual tax that you will owe in addition to the penalty will of course depend on the tax bracket you are in. You said you are currently unemployed, so I am assuming that may put you in a lower bracket for the year, and that may of course help lower the taxes on this withdrawal. It just depends on how much you plan to withdraw and how much other income you have for the year as to what tax bracket this will ultimately fall under.
At the time that you make the withdrawal, you can request the IRA custodian to withhold however much you wish to cover federal taxes, or else you would pay them at the end of the year when you file your return. However if you wait to pay the entire tax bill at the end of the year, then you may also owe some penalties and interest if it ends up you owe more than $1,000.
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Will you be filing your taxes this year as single or married?
Also, do you have any children or any other dependents that you claim?
On the $13,000 income you will have, were there any taxes already withheld from that income?
Thank you for the additional information.
If you will have total income for the year of $46,000 (including your IRA withdrawal), then just figuring the standard deduction and one personal allowance, this will put your distribution in the 15% tax bracket. When you add the 10% early withdrawal penalty, it means that you will end up paying a total of 25% in federal taxes on any withdrawal you make from your IRA. So on a withdrawal of $30,000, you will end up owing approximately $7,500 in federal taxes.
In addition, you would owe state taxes (I assume you live in Indiana) at a rate of 3.4%, so that would add another $1,020 for state taxes.
Because of the taxes that will be due, if you need the entire $30,000 to pay off the estate, then you may need to take a larger withdrawal in order to cover the taxes that you will owe. But that will be your approximate tax liability. Whatever you withdraw you would just need to figure that you will owe a total of 28% to cover federal and state taxes and the penalty. And while I realize that is a lot of money, it is not going to be 40%.
Thank you spotter.
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Thank you spotter