Have a Tax Question? Ask a Tax Expert
Thank you for the information, and please accept my apology for not being able to get back to you sooner – between unexpected visitors, my seeking more information, and my reply to you going off into cyberspace, I am hoping this will get through.
I have been informed that I may return any funds I do not wish to keep back to the Traditional IRA within 60 days, one time each 12 months in a calendar year, and the taxes will be credited accordingly.. I have now decided to withdraw the total amount from this fund which is $24,714.50, and would like to know, based on the previous information of withdrawing $20,000.00, how much tax will I need to be withheld, since it puts me into yet another tax bracket.
Repairs absolutely need to be done before things become worse, and it will be so much easier and faster to get them accomplished if I have cash-on-hand as opposed to charging on credit cards, especially if there is a chance of returning some of the withdrawal. Should the tax withheld from this amount of $24,714.50 be 40% or more since it is $4,714.50 more than the original $20,000.00 I was thinking of?
Again, I thank you so much for the detailed information and for your assistance.
I have been informed that I may return any funds I do not wish to keep back to the Traditional IRA within 60 days, one time each 12 months in a calendar year.
The IRS specifically prohibited to borrow from the IRA account - so you may not take the money out and return them back.
However you may rollover funds into different IRA account within 60 days - and that will be a nontaxable transaction.
I have now decided to withdraw the total amount from this fund which is $24,714.50, and would like to know, based on the previous information of withdrawing $20,000.00, how much tax will I need to be withheld, since it puts me into yet another tax bracket.
As we estimated above $20,000 distribution will result $7500 in taxable income.
As you are in 25% tax bracket - additional $4,714 in taxable distribution - will result ~$1200 in tax liability - total $8700.
You may request withholding before distribution - use form W4P - www.irs.gov/pub/irs-pdf/fw4p.pdf
Let me know if you need any help.
Thank you for clarifying the IRA particulars.
I just finished discussing other IRA possibilities with the IRA person, in case it happens that I do not use all of this fund, and she stated that they will go ahead and fill out the W4P for me because they still do that for their clients, and will follow my instructions for the $ amount I request them to withhold.
I shall follow your advice and request $8700 be withheld for taxes - I much prefer to take care of that issue now rather than later.
I both appreciate and thank you for the offer to assist with the W4P because it appears to be quite overwhelming.
Do you know of any other issues/pitfalls I should be aware of before I proceed with this?
I am glad I asked that last question. Part of this money is going to be used for repairs on two items - a vintage vehicle
that is not running and I am hoping to have it repaired to sell and house repairs on the property acquired through paying the taxes, and am now asking what type of building materials are deductible?
Now that you mentioned this, I realize I do have some charitable donations along with receipts for 2012 to include a few more low cost medical deductibles, and I routinely keep sales tax receipts when shop. I know in some years sales tax receipts have been deductible for other items besides large ticket vehicles and boats, etc.. I shall now pay the
property taxes by December 31 of the year issued.
This IRA situation is something I have never dealt with before and welcome any knowledge or advice from you, it is much appreciated.
At this time, I don't see how I can accomplish what i need to get done in two steps and am hoping the car sale will allow me to replace some of the fund in another IRA. I will re-review and study the info you have provided before I make a final withdrawal decision.
I am curious to know about which type of building materials that are tax deductible.
Thank you for the info and the great detail involved in the answer. I feel sure I do not have any more questions about this IRA withdrawal and the change it will produce in income and subsequent tax status. I did not know anything in the beginning, and I now have a complete understanding of the situation, thanks to your data presentation, and feel I can make an informed decision based on this knowledge.
Thank you so much.
You are so welcome, and I will definitely go back to you for any tax questions.
Good Wednesday Mr.LEV
I thought I was finished with this IRA Distribution issue; however, that is not the case and apologize for thinking so.
Today, I requested the complete IRA account withdrawal and requested $8700 be applied to income tax on the IRS Form W-4P and received completely opposite information concerning the W-4P, and was informed that they will not process it as they "are not tax consultants" and they are processing it on a 1099R, will notify IRS of the withdrawal and send the money to IRS in February at "tax time", and send me a copy of the 1099R along with an IRS publication of tax responsibility, and it was suggested consult a tax expert to fill out the W-4P. I explained that I had declined your offer of assistance after being informed by the IRA agent last evening that their company still processes the Form W-4P for their clients, and asked if submitting their 1009R and a W-4P, as well, would appear to look like two separate tax $8700 withdrawal notices to IRS, and was informed "I do not know" by today's IRA agent. I told him I did not know the content differences between the two IRS Forms and how it affects this situation, and by the time I finished my statement they intimated that it was already done and will be going out to me in today's mail.
My questions are: Will the 1099R be sufficient or do I still need to process the W-4P? And: is this the type of situation that turns into a nightmare at tax time in April ?
The form 1099R is issued by the administrator of your IRA account to report to you and to the IRS the fact of distribution
box 1 - total distribution
box 2a - taxable amount - in most situation amounts in box 1 and 2a are equal
box 4 - tax withheld - that is the amount the administrator remits to the IRS
You will use information from form 1099R when you will prepare your tax return.
So - the form 1099R is used to report the distribution AFTER it occurs.
The form W4P is used BEFORE distribution - that form is submitted to the administrator of your IRA to request specified tax withholding.
You do not have to request withholding. If you do not provide that form - normally the administrator withholds 10%.
So if you requested distribution of .$24,714.50 - your withholding is expected to be $2,471 - and the rest you will pay at the tax time or before.
There is no nightmare - as long as you will pay on time.
Thank you for the explanation. This has been a learning process for me and I am relieved to know that the tax situation is more than minimally covered by 1099R.
I feel I am now completely aware of the process and the rationale for it.
Thank you once again, and I hope you have an excellent evening.