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Phillip B, EA
Phillip B, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 704
Experience:  Practicing since 2004. Expert in 1040, small business, represent vs. IRS, & int'l tax mattters.
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I owe taxes and do not have the cash. Is it better to withdraw

Customer Question

I owe taxes and do not have the cash. Is it better to withdraw money from my IRA or cash in a CD early to raise the funds?
Submitted: 4 years ago.
Category: Tax
Expert:  Phillip B, EA replied 4 years ago.
Thanks for using JustAnswer.com! I will do my best to provide you with a clear and concise answer to your tax question based on the information that you have provided.

If those are your only options, I would suggest you should take the money out of the CD instead of taking money out of the IRA.

Unless the IRA is a Roth plan, you will have to pay income tax on the entire withdrawal. Furthermore, if you are under the age of 59.5 you will pay an additional 10% tax on the withdrawal because you took the money out of the IRA too soon before retirement.

The CD on the other hand will only produce taxable interest income on the principal and cost you a much smaller bank penalty that is deductible as a adjustment on your form 1040.

If there are additional questions, please reply to this answer so that I may assist you further. If this answers your question, please rate my performance between OK and Excellent so that I may receive credit for my work. Thanks for your business.
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Customer: replied 4 years ago.
Thank you Philip! That really helped me.
Customer: replied 4 years ago.
How do I rate you as excellent? I don't see a place to do that!
Expert:  Phillip B, EA replied 4 years ago.
You rated me high enough that I got credit from the website. It was my pleasure.