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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11350
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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If I take an early withdrawal from an IRA, does the IRS tax

Customer Question

If I take an early withdrawal from an IRA, does the IRS tax me at my current tax rate or do they put me in a new tax bracket and tax me based on my normal income plus the distribution?
Submitted: 6 months ago.
Category: Tax
Expert:  Lane replied 6 months ago.

Hi. My name's Lane ... I can help you with this.

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If you take an EARLY (before age 59 age 1/2) there are two pieces to this.

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First, the withdrawal amount is added to your taxable income for that tax year.

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So it MAY put you into a higher tax bracket so that SOME of the withdrawal would be taxed at that highe rate.

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For example, here are the tax brackets for a single filer

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Internal Revenue Code section 1(c)]

  • 10% on taxable income from $0 to $9,075, plus
  • 15% on taxable income over $9,075 to $36,900, plus
  • 25% on taxable income over $36,800 to 89,350, plus
  • 28% on taxable income over $89,350 to $186,350, plus
  • 33% on taxable income over $186,350 to $405,100, plus
  • 35% on taxable income over $405,100 to $406,750, plus
  • 39.6% on taxable income over $406,750.

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So as you can see... if your other income for the year already had you at taxable income of 89,350, (making your next dollar of income for that year taxed at 28%) you could still withdraw (186350 - 89350) = 97000 and all of it would be taxed at the 28% bracket

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Then the 10% penalty tax for withdrawing before age 59 and 1/2 will always just be 10% of the withdrawal amount.

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So in this example that 97000 would be taxed at a total of 38% plus states taxes if any.

Expert:  Lane replied 6 months ago.

Please let me know if you have any questions at all, before rating me.

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And if you DON'T have other questions Your positive rating … (by using those the stars or faces on your screen, and then clicking “submit”) …would be appreciated!

Otherwise I receive no compensation for the work.

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Thank you,

Lane

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I hold a law degree, with concentration in Tax Law, Estate law & Corporate law, a Masters Degree, with specialization in financial accounting & tax, a BBA, and CFP & CRPS designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, since 1986

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