I haven't done the withdraw yet but I am trying to understand the tax implications in withdrawing 200k out of my IRA.
For ease of the scenario, let's just assume the only income for the year would be the 200k early withdrawal from my IRA (as I am not 59.5).
The company automatically withholds 20% for taxes so 40k would be withheld upfront.
I currently file as head of household with 2 dependents ( 8 and 1).
When I put the earlywithdrawal and tax withheld into taxcaster for an estimation of taxes, it says that I would get a refund of $5,974.
I am aware that taxcaster does not compensate for the 10% early withdrawal penalty which in this case would be 20,000. So with that said that means I would owe about $14k in taxes that year. Does that sound like I am calculating it all correctly?
Is that the correct way to estimate the taxes for the year including the penalty?
You are correct about needing the tax on the income plus the withdrawal penalty. At $200,000 you are in the 24% tax bracket but may have deductions to take you down to 22%. Companies normally only withhold 20% which would leave you short for the tax plus the penalty.
Then subtract any credits to which you are entitled. Two children would be $4,000 credit plus any other credits for which you may qualify.
I recommend using:
The W4 planner will determine your tax liability despite not needing a W4.
We do not do tax planning here at Turbo Tax.
You are correct about needing the tax on the income plus the withdrawal penalty. At $200,000 you are in the 24% tax bracket but may have deductions to take you down to 22%. Companies normally only withhold 20% which would leave you short for the tax plus the penalty.
Then subtract any credits to which you are entitled. Two children would be $4,000 credit plus any other credits for which you may qualify.
I recommend using:
The W4 planner will determine your tax liability despite not needing a W4.
We do not do tax planning here at Turbo Tax.
Although it doesn't affect the tax consequences in this scenario, if the company is required to withhold 20%, the account is not an IRA but is an account in a qualified retirement plan like a 401(k). An IRA is subject to 10% default withholding but you also have the options to have 0% withheld or more than 10% withheld; withholding is not mandatory on any distribution from an IRA.