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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16576
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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How does the IRS figure the tax on my Simple Rollover IRA?

Customer Question

How does the IRS figure the tax on my Simple Rollover IRA? During the current year, I had to redeem about $130,000. My wife and I are on PERA retirement and gross about $51,000. Taxes withheld amout to about $4,500. The IRS website is confusing to me. I don't know if the tax will be 10%, 25% or even as high as 35%. I just need to know the estimated amout so I can plan for paying taxes next April.
Submitted: 4 years ago.
Category: Tax
Expert:  Megan C replied 4 years ago.
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

Thank you for your question. You redeemed $130,000 from your IRA. If you are under age 59.5 you will first pay a 10% penalty that is not refundable. You owe $130,000 for this off the bat. If you are over 59.5 you will NOT owe this penalty.

The full $130,000 will also be subject to income tax. You will pay tax at your marginal rate, which depends on your filing status, and your income. I am assuming that you are married filing joint and the only other income you have is $51,000 per year. So, this year you have $181,000 in income. If I remove the standard deduction and two exemptions, your taxable income would be $161,500. This amount could be less if you have other deductions or if you itemize your deductions.

Based on this, I calculate your tax to be $33,483.50 (for all your income, not just the IRA). You are in the 28% tax bracket at this point in time. If you are under 59.5 this is IN ADDITION TO the $13,000 penalty.

Your IRA custodian should withhold 20% for taxes plus the 10% penalty before giving you the rest. If they did that, then you will only have to pay in about $3,000 if you consider your other withholding as well.

I sincerely hope this helps. Please let me know if you require further clarifications in this matter.

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Expert:  Megan C replied 4 years ago.
Thanks for allowing me the opportunity to help you. Please let me know if I can be of any further assistance to you in this matter. Thanks again for being a JustAnswer customer

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