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Simple IRA withdrawal taxes

My husband took out an early withdrawal from his simple IRA in the amount of $18,7500.  He paid an amount of $3,750.00 in Federal Income Tax Withheld.  We were under the assumption that that amount would take care of the taxes and the 10% early withdraw fee.  But when I did our taxes, it said we still had to pay $1875.00 for an early withdrawal fee?  Is this correct?  Our financial adviser said that he was taking more taxes out to make sure everything was already covered and we wouldn't owe on it??  

2 Replies
Level 15

Simple IRA withdrawal taxes

It would appear that 20% was withheld. If an early withdrawal then 10% of that would pay the 10% penalty, leaving only 10% to pay the normal tax. If you are in the 26% tax bracket the  you should have had at least 36% withheld or about $6700.


The amount withheld is only an estimate of the tax (just like W-2 withholding).  The actual tax is determined by everything else on your tax return and your total taxable income.


All withholding form W-2's and 1099's are combined on line 17 on the 1040 form ans used to offset the total tax.  If too must was withheld, yiu get a refund, if not enough, you owe more.





**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Level 15

Simple IRA withdrawal taxes

The taxable amount of the distribution was entered on your tax return, added to your other income, and taxed at your current tax rate.  Federal taxes withheld as reported on Form 1099-R are entered on your tax return, Form 1040 Line 17.

You are taxed on your taxable income as shown on Form 1040 Line 11b.   You tax liability on the taxable income is shown on Line 12b.

The 10% additional tax is assessed on your tax return, reported on Schedule 3 Line 6 with that amount flowing to Form 1040 Line 15. 

Your Total Tax Liability is shown on Form 1040 Line 16.

Your Total Tax Payments is shown on Form 1040 Line 19

If your total tax payments are greater than your total tax liability then you will receive a tax refund for the overpayment.

If your total tax payments are less than your total tax liability then you will have taxes owed.

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