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In order for me to properly assist you, I would need to know if you have a Roth 403(b), or a traditional 403(b) plan. Please advise.
In the event that you do not have a clear understanding as to what "Grossing Up" is, it is when you take out the amount you need plus the taxes. As requested in my previous writing, I would need to know if it is a Roth 403(b) or a traditional 403(b) plan. Thank you.
The withdrawal amount will be taxed as ordinary income and is not necessarily exempt to the 10% penalty. Unless you are the age of 59-1/2 at the time of the withdrawal and your 403(b) plan offers this benefit, in addition to the withdrawal amount being taxed as ordinary income, add 10% early withdrawal penalty to the amount as well.
Example: The requested amount is $9,870. If the 10% penalty applies, this is an additional $987 that you would need to request. If you fall into the 10% tax bracket, $987 is the tax on the $9870 withdrawal. So you add the amount of the withdrawal with the tax amounts to get the "Grossed Up" amount.
To accurately determine how much you need to "Gross Up" depends on the tax bracket you fall under.
These are the 6 income tax brackets that a taxpayer may fall under;
Your tax bracket is determined by your income and filing status.
Based on this information, you fall under the 25% tax bracket for federal.
$ 9870.00 x 25% (tax bracket) = $ 2,467.50
$ 9870.00 x 10% (early withdrawal penalty if applicable) = $987.00
$2,467.50 + $987.00= $3,454.50
For federal you will add the requested amount of $9,870 to the $3,454.50, which equals $13,324.50. For the state of North Carolina, you fall under the 8% tax bracket. 8% of $9870 is $789.60. You take the $13,324.50 (requested amount, federal income tax, penalty) + $789.60 (state income tax amount) = $14,114.10. In order for you to take a distribution in the amount of $9,870, you would need to request $14,114.10.
To reiterate, "Grossing Up" is when you take the net and add the taxes to it, which is what I did in my previous answer. I stand behind my previous answer. Thank you.