How to figure the tax withholding on an early IRA withdrawal can be a complex issue. The type of IRA account you want to take your money from can make a difference. If you are under the age of 59 ½, unless you qualify for an exception, you will have to pay a ten percent penalty for early withdrawal. You may want to contact your accountant, to be sure you know exactly what the tax withholding on an early IRA withdrawal is for your situation.
- In order to calculate the tax withholding on an early IRA withdrawal, you should first determine if you are eligible for an exception. For example, if you are using the money to buy your first home, or for one of your children’s college education expenses, you will not be subject to the 10 percent penalty for early withdrawal. There are other exceptions as well, so make sure to find out if you qualify.
- If the withholding on an early IRA withdrawal is higher than you expected, you may want to try to find another source for your funds. You will need to weigh the cost of the financing you use for the money against the taxes you are required to pay on your early IRA withdrawal. For example, if you are able to use your home equity as a source of funds, the interest you pay back on the loan should be tax deductible. Make sure to consider all other options before you choose to cash in your IRA early.
- If you have already made the decision to cash in your IRA, determine which type you have. Since the money you are taking out has never been taxed, it is subject to regular income taxes in most cases if you are using a traditional IRA. If you have a Roth IRA, not only must you be 59 ½ years old, the Roth IRA must also have been established for a period of no less than five years to avoid a penalty.
- When you have cashed in your IRA early, you will then receive a 1099-R form at the end of the year. This will help you figure the withholding on an early IRA withdrawal, since the form shows the taxable amount you must report when you file your tax returns.
- If you have an accountant, many will not charge a fee to compute the tax withholding on an early IRA withdrawal. They are already preparing your tax returns for you, so in many cases their consultation is free. Be certain to find out however, before you seek their assistance.
What Others Are Reading Right Now.
15 Women Confess the One Thing They’d Never Admit to T...
"I masturbate any opportunity I get when he is not home.”
Sarah Huckabee Sanders Dropped a Whopper, but It’s Not One o...
Prep for these fibs. Ladies will thank you, and that’s the truth.
Do This Surprising Thing and Science Says Women Will Be All ...
No, it's not "buy a Ferrari."