Does cashing in an IRA after 70 1/2 and having taxes withdrawn when cashing, affect my Taxable amount?

[dmertz]

Having taxes withheld does not change that taxable amount of the gross distribution shown in box 1 of the Form 1099-R, since federal taxes must be paid with money that has already been taxed.  The tax withholding is simply a pre-payment toward the tax liability eventually shown on your tax return.  You get credit for this prepayment on Form 1040 line 64 or Form 1040A line 40.

[VolvoGirl]

But it does increase the taxable income on your tax return.  So you might lose some credits.

[dmertz]

"Cashing in" implies that the entire value of the IRA is being distributed.  The taxable amount of the gross distribution and is the same no matter if a particular portion of the money goes to tax withholding or if it goes in your pocket.

Perhaps VolvoGirl is referring to *increasing* the amount of your distribution to be able to send part of it to the government as tax withholding instead of leaving the money in the IRA.  Certainly if you increase the gross amount of a taxable distribution, the amount of income reported on your tax return will go up.  However, if you are "cashing in" the entire balance of an IRA, the amount being distributed is predetermined and you are simply deciding whether to use part of that predetermined distribution amount to pre-pay part of the taxes with tax withholding or not.

[VolvoGirl]

Yes I was saying the taxable amount of the distribution will go on your tax return and increase your total income for the year.

[dmertz]

Ah, I see your point now. Yes, that's correct.  It word "it" in your original comment was ambiguous, which I originally took as referring to the tax withholding rather than the gross distribution amount.