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.

[jandmbeerer]

Thanks for your explanation.  There is nothing in box 4 of the 1099R.  The first that I saw the $1,000 being withheld was when I did my taxes through TT.  The amount in lines 16 and 24 of the 1040 are the same.  There's nothing on line 20.  I did figure out that my taxable Social Security was raised and coupled with the Distribution, if both were taxed at 4.9%, would explain about $500 of the withheld $1,000.  When I do my 2025 taxes I will look at Line 25b to see if $500 is added to the Fed Tax withheld, as mentioned above by AmyC.  If you have any other ideas I would appreciate your input.  Thank you so much!

[VolvoGirl]

I think you are confused.   What do you mean seeing 1,000 was withheld?   Withholding means deducted from your pay like on a W2 box 2 or from a distribution 1099R box 4.   It doesn’t mean the tax on 1040 line 16 or a tax due on line 37.  We all need to use the same words and terms to know what you are asking or talking about.