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Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Experience:  Nearly 30 years of varied tax industry exp. Tax Biz owner
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I want to take $20,000.00 out of my IRA, what is the total

Customer Question

I want to take $20,000.00 out of my IRA, what is the total amount of taxes taken for federal, state and penalties taken out of this amount?
Submitted: 3 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 3 years ago.

Hello,

 

Welcome to Just Answer!!

 

The early withdrawal penalty, also called the early distribution rule is a 10% federal tax that is applied to withdrawals made before age 59-1/2. 10% of $20,000 = $2,000. There are exceptions whereas you may not have to pay the 10% penalty.

 

You are using the withdrawal to pay for:

 

unreimbursed medical expenses in excess of 7.5 of your adjusted gross income;

 

health insurance premiums for you, your spouse or dependents during a year in which

 

you collected unemployment benefits for more than 12 consecutive weeks;

 

qualified higher education expenses for you, your spouse, dependents, grandchildren;

 

unpaid federal income tax liability levied by the IRS;

 

you make a qualifying rollover;

 

you are receiving the funds due to a qualifying disability;

 

I will get back with you shortly with the amount for the state of CT. Thank you.

Expert:  Tax.appeal.168 replied 3 years ago.
There is no state tax/penalty for the CT. So for the $20,000 withdrawal, if you don't meet any of the exceptions previously mentioned, you will be looking at $2,000. Let me know if this answers your questions. Thank you.
Expert:  Tax.appeal.168 replied 3 years ago.
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Tax.appeal.168, Tax Accountant
Category: Tax
Satisfied Customers: 2499
Experience: Nearly 30 years of varied tax industry exp. Tax Biz owner
Tax.appeal.168 and 2 other Tax Specialists are ready to help you
Customer: replied 3 years ago.
During my conversation with the investment firm they told me we would have to pay federal taxes, State Taxes and a 10% penalty for withdrawing early and it is not for any of the reasons stated above, I want to buy an above ground pool.
Expert:  Tax.appeal.168 replied 3 years ago.

Hello again,

 

In some cases there is the additional 10% penalty, and not all states have tax implications for early withdrawal. Researching the matter, I did not find any info regarding a state implication, or the additional 10% penalty. However, let's say there is the additional 10%. You would be looking at 20% which will total $4,000.

Customer: replied 3 years ago.
what about the amount of State and federal taxes that will need to be taken out
Expert:  Tax.appeal.168 replied 3 years ago.

What type of IRA is it? Is it a Roth or traditional IRA?

Expert:  Tax.appeal.168 replied 3 years ago.
Are you 59 years or older?
Customer: replied 3 years ago.
No, I am 43 and I think it is a traditional Roth
Expert:  Tax.appeal.168 replied 3 years ago.
Ok, I'll get back to you shortly.
Expert:  Tax.appeal.168 replied 3 years ago.

As far as the taxes, you must include the $20,000 as income. So you will add the $20,000 to any other income and it will be taxed at the same rate your income is taxed at.

Expert:  Tax.appeal.168 replied 3 years ago.

Further clarification:

 

You will receive a Form 1099-R from the company that manages your IRA account. Looks similar to a W-2. This form will show the distribution amt. which is $20,000. The form also shows the distribution code. Since it's an early distribution, code 1 will show in box 7 of the 1099R. Again this money will be considered as income to you and taxed as such.

Customer: replied 3 years ago.
Couldn't these taxes be taken out up front and what would they be?
Expert:  Tax.appeal.168 replied 3 years ago.

I will check on the particulars and get back with you.

Expert:  Anne replied 3 years ago.
Hi

Thank you for using justanswer. Yes, you may elect to have the taxes withheld before you receive the IRA distribution. In fact, as long as your are under age 59 1/2 IRS requires at least 20% withheld (10% of that is to cover the early withdrawl penalty). The only way to stop the 20% withholding is to sign a waiver.

You may request that more be withheld for Federal, especially if, along with your other income, the additional $20,000 jumps you to the next tax bracket. (See below)

http://taxes.about.com/od/Federal-Income-Taxes/qt/Tax-Rates-For-The-2011-Tax-Year.htm


These rates are AFTER your standard deduction ( or Itemized Deductions if you have enough to itemize ) and After all personal exemptions have been subtracted.

You may also ask to have CT tax withheld on your distribution. The additional tax on the early distribution will add approximately $156 if you're single, $0 if your married, but remember, you must also add any other income to the $20,000 and look at the tables to see if the additional income (W2's interest income, rental income, etc) to see if that changes the picture.

Please see the tax rate table beginning on page 30 :

CT-1040


Again, here's the web address is the link doesn't work:

http://www.ct.gov/drs/lib/drs/forms/2010forms/incometax/ct-1040booklet.pdf

I hope this helps

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