I want to take money out of my IRA, should I elect to have Federal Income Tax withheld from my distribution?

Question

I'm not sure which would be best for me.

Answer 1

Absolutely! If you don't, then you'll have to pay that Federal Income Tax at tax time next year, as well as any applicable state and local ones too. These extra taxes could negate a large portion of any refund you'd have coming, or increase the amount you'd have to pay.

Answer 2

Hello, Ted! Having some tax withheld from your distributions is probably a good idea regardless. Unless it is a very small distribution or your tax situation happens to fall just so, you will at least have to pay regular tax on the distribution, and you may owe an extra 10% early withdrawal penalty unless you are at least 59 1/2 years old or you meet one of the exceptions. Depending on how the rest of your tax situation looks, this could possibly even create underpayment penalties if your other withholdings or estimated payments throughout the year aren't at least 90% of your final 2007 tax liability.

Check the links below for more info. Good luck! :-)

Answer 3

Yes, you should - try to have enough withheld to cover whatever income tax you'll owe on the distribution. If you're under 59-1/2, you will probably have to pay and additional 10% penalty on what's withdrawn, if your withdrawal isn't for one of the purposes for which an early withdrawal is permitted - you'll be paying income tax even if it is for one of those purposes.