17.1 Individual Retirement Arrangements (IRAs): Distributions, Early Withdrawals, 10% Additional Tax
How do I calculate minimum the amount that must be withdrawn from my IRA
after age 70 1/2?
You will need to get Publication 590, Individual Retirement Arrangements
(IRAs) to find out this amount. Generally the minimum distribution is computed
using one of three tables found in Publication 590. Table I is used by beneficiaries.
Table II is for use by owners who have spouses who are more than 10 years younger.
Table III is generally for use by unmarried owners and owners who have spouses who
are not more than 10 years younger.
References:
If we cash in an IRA account while in our thirties, what forms do we need
to fill out?
You will need to file a Form 1040 and show the amount of withdrawal from your IRA.
Since you took the withdrawal before reaching age 59 1/2, unless you meet certain
exceptions listed in Publication 590, Individual Retirement Arrangements (IRAs),
you will need to pay an additional 10 percent tax on early distributions from qualified
retirement plans that is reported on line 57 of Form 1040. You may need to complete Form 5329 (PDF), Additional Taxes on Qualified Plans (including
IRAs) and Other Tax-Favored Accounts, and attach it to the tax return, if required.
If you ever made nondeductible contributions to your IRA, you must complete Form 8606 (PDF), Nondeductible IRAs and Coverdell ESA's attach
it to your return. Form 8606 is used to determine if the total amount of your distribution
is tax free.
References:
- Publication 590, Individual Retirement Arrangements (IRAs)
- Form 5329 (PDF), Additional Taxes On
Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
-
Instructions for Form 5329, Additional Taxes On
Qualified Plans (Including IRAs), and Other Tax-Favored Accounts
- Tax Topic 451, Individual Retirement Arrangements (IRAs)
- Tax Topic 557, Tax on Early Distributions from Traditional
and Roth IRA's.
- Form 8606 (PDF), Nondeductible IRSs
and Coverdell ESA's
If we cash in an IRA account while in our thirties, when do we pay the taxes
and penalties?
Because our tax system is a pay-as-you-go system, you may need to make an estimated
tax payment by the due date for the quarter in which you received the distribution.
When calculating your tax liability to determine whether you need to make an estimated
tax payment, your total tax for the year should include the amount of the additional
10 percent tax on early distributions from qualified retirement plans unless any exception
applies.
You would calculate the tax on Form 1040-ES (PDF), Estimated
Tax for Individuals, and any 10 percent additional tax on early distributions
from qualified retirement plans on Form 5329 (PDF), Additional
Taxes On Qualified Plans (Including IRA's) and Other Tax-Favored Accounts. Any
10 percent additional tax would go on Form 1040ES line 12 "other taxes," when completing
the worksheet.
References:
- Form 1040-ES (PDF), Estimated Tax for
Individuals
- Form 5329 (PDF), Additional Taxes On
Qualified Plans (Including IRA's) and Other Tax-Favored Accounts
- Publication 505, Tax Withholding and Estimated Tax
- Tax Topic 451, Individual Retirement Arrangements (IRAs)
- Tax Topic 557, Tax on Early Distribution from Traditional
and Roth IRA's.
Can the 10% penalty for an early withdrawal from an IRA be deducted in the
Adjusted Gross Income section of Form 1040 as a penalty on early withdrawal of savings?
No, the additional 10 percent tax on early distributions from qualified retirement
plans you pay for a premature withdrawal of an IRA does not qualify as a penalty for
withdrawal of a savings account.
References:
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