I've had a Simple IRA for 5 years and I need to get the funds. I know that there will be a 10% penalty for early withdrawal and that I also need to pay federal tax on it as income. My question is what percentage do I need to have withheld? I know they automaticly take 10% unless you specify more. My tax bracket is 25%- is that what I should put on the distribution request? I don't want to owe a ton at tax time or worry about underpayment penalties...
2007-07-27 07:40:23 · 3 answers · asked by ravenchansan 1 in Business & Finance ➔ Taxes ➔ United States
If you can request, request 35%. That is the 25% for the income tax, and an additional 10% for the penalty. If you have a state income tax you'll need to save a few percent for that tax as well.
2007-07-27 08:10:46 · answer #1 · answered by edandyvonnemoore@sbcglobal.net 3 · 1⤊ 0⤋
They will automatically withhold 20%; that's the law. Supposedly you can ask for more to be withheld but when I closed out one a number of years ago they refused to withhold anything more than the mandatory amount.
If you're in the 25% tax bracket, the total bite will be 35% including the 10% penalty so you should set aside an additional 15% of the gross distribution for when you file.
If that's more than $1,000 it would be a good idea to pay that in to the IRS using Form 1040-ES to avoid any chance of any penalties for underpayment of tax at filing time. If you do that, don't forget to list the estimated payment on the appropriate line on your return so you get credit for it when you file.
2007-07-27 15:40:14 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
If your bracket is 25%, you'll owe that plus the 10% penalty, so would need to have 35% withheld for taxes to break even at tax time.
2007-07-27 18:32:02 · answer #3 · answered by Judy 7 · 0⤊ 0⤋