Early Withdrawal

Archive for March, 2009

Question: Question about the taxes on an early Ira Withdrawal?

I know there is a 10% penalty on early IRA withdrawals and you also have to treat the withdrawal as ordinary income on your taxes. My question is does the whole amount count as income or just the amount after the 10% penalty. In other words, if I cash in my $10,000 IRA the bank holds out $1,000 for the IRS and (for example) $300 for their penalty and cut me a check for $8700. When it comes time to report my income on my 1040 do I report $10,000, $9,000 or $8700?

Answer: You would have to report 10,000 on the tax return. There will be a 1099-R issued to you at the end of the year.

You would receive a check for the gross amount less any fee the brokerage firm charges. Nevertheless, you tax due will be based on the gross distribution (10,000) + 10% penalty also on the gross.

You can ask the brokerage firm to withhold federal and state taxes.

Roth IRA: Building a Tax-Free Retirement on Money Smart Radio

Question: Is it a bad idea to make an Early Withdrawal of an IRA?

I have a small amount of money in an IRA from a past employer (2800) and would like to withdraw it to deal with some current debt. I have a healthy 401K at my current employer – but what penalties will I face by withdrawing this?

Answer: The money you take out will be taxable and considered income.
Be careful in how much you take out, it could bump you into a bigger tax bracket.
I know it’s hard to calculate, but keep it in the back of your mind.

I hate to see anyone removing money from an IRA.
Did you know that if you can prove hardship, you could make a loan from your current 401K?
Call your HR person and make an appointment – you will have to show prof of hardship (such as credit card debt).

Where is that IRA money? Did you leave it at your last employer?
That is not a good idea.
Sometime in the future I want you to roll that over to a brokerage account.
Only leave it at old employer if you know that it will NEVER go out of business.

Oh I forgot, 10% penalty + your current tax rate.
Keep up to 40% aside for next tax time in April – you’ll have to write a big fat check for taxes and penalties.
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Alex Jones & WeAreChange Ireland – IRA – EU Treaty (part 1)

What is the Uniform Lifetime Table?

Below is the uniform lifetime table for 72t distribution calculation.