Retirement acct. prepaid taxes on withdrawal

[jlanham1]

I paid taxes when I withdrew money from a retirement account, but now I'm being charged taxes again. 1099R is missing a field that Turbo Tax is requesting - Federal ID number of account payer

[macuser_22 · Accepted solution]

The payer is required by law to put their Federal TIN (EIN) in the box supplied for it on the 1099-R form.  If missing then contact the payer.

You had withholding taken out, you are paying the tax now.

The box 4 withholding is added to all other withholding (like W-2 withholding) on line 16 of then 1040 form and will be used to offset your total tax liability.

If not enough was withheld to pay the tax that depends on your other income and marginal tax rate, then you might owe more or your refund will go down.

Often the default 20% withholding in a 401(k) is not enough unless you specifically asked for more to be withheld. Especially if you are under age 59 1/2 and the is an early withdrawal subject to the 10% penalty.

If that is the case then half of the withholding pays the penalty leaving only 10% for the tax and if you are in the 20% tax bracket, then the withholding was 10% short.

[VolvoGirl]

You didn't actually pay the tax or 10% penalty (you pay a 10% early withdrawal penalty if you are under 59 ½). You had taxes withheld like from your paycheck. You still have to enter the whole amount (before taxes were withheld) with your other income to figure out the total tax (and it may put you into a higher tax bracket) and then the withholding is subtracted from the total tax to figure your refund or tax due. It has to break out and list the 10% early withdrawal penalty separately on your return. It's on 1040 Schedule 2 line 6. Then you will get credit for the withholding on 1040 line 17.

And it's very very common to owe more because the withdrawals increase your income and put you into a higher tax bracket. So when you add all your income for year you didn't have enough withholding taken out of the 1099Rs to cover the total tax. You owe more than they sent in for taxes.

And by increasing your income it would have changed other items on your return like make more of your SS taxable or changed the limits on your Medical deductions or employee job expenses and changed any credits you qualified for.

[jlanham1]

Thanks - this helps very much. But, when I do the math, and add $ to what was withheld to get to a full 20%, according to TurboTax, I still must pay another nearly $1000. Not sure why? Tax bracket issue? I end up owing way more than 20% And I am over 60. 

[macuser_22]

It is taxed as ordinary  income and add to your AGI and taxable income.   The tax rate is whatever the marginal tax rate is for the amount of taxable income that you have which can be between 10%-37%.

(Add another 10% if under age 59 1/2).

[jlanham1]

Ah - I appreciate your patience and knowledge very much. Thank you!

[Carl]

When you withdraw from a retirement account, the account administrator is required by law to with hold a minimum of 10% for taxes. Most of that time, that's the exact amount that will be with held. For some tax payers that's just not enough to cover the complete tax liability when considering all of the person's taxable income from all sources.

On top of that, if it's an early withdrawal the account administrator is required by law to with hold an additional 10% for the early withdrawal penalty.

[macuser_22 · Accepted solution]

A 401(k) (or similar retirment plan) requires a 20% withholding.   The 10% withholding apples to IRA's but the plan owner can opt-out of any withholding or have more withheld.