When taking
an early distribution from a retirement plan, you are often advised about the
10% early distribution penalty and that the distribution will be taxed. When taxes are withheld, the reality is that
the early distribution penalty may be taken care of, but the amount that the
distribution will raise your income tax is often overlooked.
When the
distribution is added to your other income items on your return, you may have
been moved into a higher tax bracket.
Or, the taxes that were withheld from your early distribution may be
making up a shortfall in withholdings from your other sources of income.
The bottom
line is that the early distribution and the taxes withheld is not considered a
taxable event on its own. It must be
integrated with the rest of your tax return to see the full impact.
