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I have a tax question. If I withdraw more than my contributions

to my simple IRA is...
I have a tax question. If I withdraw more than my contributions to my simple IRA is there additional penalties that what is normally levied by the IRS? I also need to know if I will have to pay state income tax on that money. I know that my contributions were already taxed by my state and that I will pay Federal taxes and penalties for the early withdraw. I am just trying to find out if it makes a difference WHO put the money in the account. thanks
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Answered in 15 minutes by:
9/19/2013
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,162
Experience: Taxes, Immigration, Labor Relations
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Lev :

Hi and welcome to our site!
You may withdraw amounts held in my SIMPLE IRA at any time. Your employer can't require you to retain any portion of the contributions in your SIMPLE IRA or otherwise impose any withdrawal restrictions.
Generally, the same tax results apply to distributions from a SIMPLE IRA as to distributions from a regular IRA. However, a special rule applies to a distribution received from a SIMPLE IRA during the 2-year period beginning on the date on which you first participated in your employer’s SIMPLE IRA plan. Under this special rule, if the additional income tax on early distributions applies to a distribution within this 2-year period, then the rate of additional tax under this special rule is increased from 10 percent to 25 percent. If one of the exceptions to application of the early distribution tax under section 72(t) applies (for example, for amounts paid after age 59 1/2, after death, or as part of a series of substantially equal payments), the exception also applies to distributions within the 2-year period and the 25-percent additional tax does not apply.


 

Lev :

It doesn't matter if you as an employees made salary reduction contributions or/and the employer made either matching or nonelective contributions.

Customer:

Can you tell me if employer contributions are taxable at the state an local leval? Logic would tell me they should be as they are not reported as income on your w2 but logic does not always prevail in these matters. thanks

Lev :

You are not taxed twice on the same income - on any level - federal state or local.
If some income was already taxes - it never taxed again.

Customer:

But it was never taxed or shown as income, employer contributions to an IRA or 401K don't show up on your W2(as far as I know) am I incorrect on this?

Lev :

This if your contributions into retirement plan were not excluded from taxable income on state and local levels - that amount will not be taxed upon distribution - that is your basis. However earnings might be taxable on state level or not depending on your age.

Lev :

PA DOR specifically addressed this question here - https://revenue-pa.custhelp.com/app/answers/detail/a_id/365/related/1/session/L2F2LzEvdGltZS8xMzc5NTQ0NDUxL3NpZC82dFF4S0ZBbA%3D%3D


How do I determine if my IRA withdrawals are subject to PA income tax?


Distributions from an IRA are not taxable if the payments are:


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1. Received, including lump sum distributions, on or after reaching the age of 59 1/2.
2. Paid to the estate, or designated beneficiary, of the participant by reason of the participant’s death.
Distributions you receive before age 59 1/2, even if you are retired, are taxable even if you receive substantially equal payments, and for federal purposes, you do not pay a penalty for an early withdrawal. Distributions from an IRA, including a federal Roth IRA, are taxable to the extent the distribution exceeds your previously taxed contributions. Further, under the cost recovery method, the taxpayer is required to remove his contributions first and then the untaxed portions.
PA law does not have any exceptions similar to the federal exceptions for withdrawal before age 59 1/2.
I hope that clarifies your issue.

Customer:

yes, thanks!

Lev :

You are welcome. So as we see - the same amount i snot taxed twice on any level and you might be taxed ONLY on amounts that previously were not taxed.

Customer:

thanks again!

Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 30,162
Experience: Taxes, Immigration, Labor Relations
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