10% Early withdrawl penalty

[Guest P Taft]

I need to make a large withdrawal from a Ira and will be subject to the 10% penalty. Should I have the 10% penalty taken out of the distribution right away?( Along with the federal and state taxes). I know that I would probably have to pay a penalty at tax time if I didn't have enough taken out for Federal but does that apply to the 10% penalty also?

[John G]

I am curious as to the circumstances that is driving your large withdrawal. When you consider the taxes and penalties, I surely would want to exhaust all the alternatives. For example, you could consider a home equity loan or borrowing within your family. If you are close to retirement age, you might be able to arrange a bridge loan with a bank. You also have the 60 day grace period if you move your IRA, although I do not normally recommend that option because of the possible pitfalls if you blow the timing.

The 10% penalty is about equal to the one year cost of a loan! Generally, you want to maximize the time money is kept in a shelter. Dollars that flow out of an IRA/Roth are not easily restored.

If you have no other option but to withdraw the funds, then you will have a significant tax bill. Work with an accountant to discuss how to structure withholding and estimated taxes. You may have other options then having everything taken out the day you get the check.

[Guest AFRICA6796]

You should not have the 10 % penalty taken from the distribution, as amounts withheld by the IRA custodian is paid to the IRS as federal tax and not penalties.

the penalty must be figured into you taxes when you file.

The penalty that is assessed for not paying suffieicnt estimated tax , is not assesed on your not paying the panalty

I hope this helps