Taxes on IRA

[jandmbeerer]

I took a $5,000 IRA distribution in 2024 and did not withhold taxes because I knew it would not put me into the next tax bracket and I always get a refund.  I still got a refund but the IRS took $1,000 away from the refund.  The 1099 is coded correctly as a "7" so I don't know why I was taxed.  

[MinhT1]

IRA distributions are taxable. Code 7 in box 7 means that it is a normal distribution, not subject to the early withdrawal penalty as you are 59 1/2 or older.

For more information, please read this IRS document.

[jandmbeerer]

Yes, I realize that my IRA is going to be taxed but it was taxed at a 20% rate, whereas the rest of my taxable income is actually taxed at 4.90%.  

[AmyC]

The IRS requires a 20% withholding as the minimum for retirement plans but not IRAs. Somebody doing the IRA distribution may have confused the rules since the 20% tax is so common.  It does mean the government held your money and you lost the investment benefit. It will be part of your refund when you file as the tax that was withheld will be accounted for on the 1040, line 25b.

References:

• IRS Publication 590-B (Distributions from IRAs
• 26 U.S. Code § 3405(c): states that any "eligible rollover distribution" from a qualified plan (like a 401k, 403b, or 457b) is subject to a mandatory 20% withholding if the funds are paid directly to you. You can ask them to withhold more; but, not less.

[Mike9241]

This forum has no access to your return. Thus, it doesn't know key items in your return. Nor does it know how that 4.9% was calculated. Is the $1000 the amount withheld box 4 of the 1099-R, or the increase in line 16 or 24 of your 1040? Are 16 and 20 the same? 

20% is somewhat questionable. However, more income can affect many other items on your return. 

Unless you are using the basic version, you can request help fom Turbotax support. But then you must let them see certain (screen share) info on your return.