Does Early Roth IRA redemption alter my tax rate?

[bhuether]

Hi,

I currently have 10% tax rate for 2021 taxes.  I am living off military retirement, and so my only income is on the 1099-R I receive for my retirement pay.  But I made early Roth IRA withdrawal in 2021 and so in Feb I will receive additional 1099-R for the Roth IRA.  Does the amount (not counting contributions) I withdrew get added to my tax rate?  In other words, if I had tax rate 10% prior to the withdrawal, will I be bumped up in the tax bracket and receive higher rate? 

[MinhT1]

It depends.

Your early withdrawal from the Roth IRA will cause earnings (from the Roth IRA) to be taxable and subject to the 10% penalty.

Whether this will bump you to the next tax bracket depends on the actual numbers of your present income and the amount of the Roth earnings.

• The lowest rate is 10% for single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).
• 12% for incomes over $9,950 ($19,900 for married couples filing jointly).

[bhuether]

Looks like the earnings on the IRA that I withdrew is about $170K.  For some reason, I thought tax rate is set prior to distributions, so was banking on a 10% tax rate and the 10% penalty. So I take it this means my situation is much worse than I expected.

[MinhT1]

For your information, below are the tax brackets for tax year 2021:

Marginal Rates: For tax year 2021, the top tax rate remains 37% for individual single taxpayers with incomes greater than $523,600 ($628,300 for married couples filing jointly). The other rates are:

• 35%, for incomes over $209,425 ($418,850 for married couples filing jointly);
• 32% for incomes over $164,925 ($329,850 for married couples filing jointly);
• 24% for incomes over $86,375 ($172,750 for married couples filing jointly);
• 22% for incomes over $40,525 ($81,050 for married couples filing jointly);
• 12% for incomes over $9,950 ($19,900 for married couples filing jointly).
• The lowest rate is 10% for incomes of single individuals with incomes of $9,950 or less ($19,900 for married couples filing jointly).