Early Withdrawal

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.

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