Before I answer your question, and without knowing your age, I want you to know that taking withdrawals from an IRA before you're retired is something you should do only as a last resort. Why?
If you withdraw money from a traditional IRA before you turn 59.5, you must pay a 10% tax penalty (there are a few exceptions, but that's for a different post).
The IRA withdrawal will be taxed as regular income, and could possibly propel you into a higher tax bracket, costing you even more.
Once you take it out, you can never put it back. So recognize that you can't borrow from a traditional IRA. Factor in the years of compounding interest you will be forgoing, and most people find the long-term opportunity cost overwhelming.
That said, I recognize that there are times when you have little choice. Or you could be older than 59.5 and wanting some advice on smartly accessing your money. No one can tell you the specific dollar amount to withhold without knowing a lot more about you, but here are some ways to figure it out on your own:
Don't withhold anything. There is nothing wrong with postponing paying the tax until April, so long as you can come up with the cash. In other words, take your $15,000 now and pay Uncle Sam later. Withhold too much now, and you risk giving the Government an interest-free loan for several months.
Use last year's effective tax rate as your guide. If your taxable income is about the same as last year, withhold at your effective tax rate from 2011. Chance are you'll be close to that same level in 2012. Figuring your effective tax rate is easy to do: on the first page of your 1040 find your "Total Income." Locate your "Total Tax" on the second page. Divide your "Total Tax" by your "Total Income." Voilà!
Take full advantage of your standard deduction and personal exemptions. Together, your standard deduction (or itemized deductions) and your personal exemptions represent how much income will be tax-free. Coordinate how much tax to withhold on your $15,000 distribution with your mortgage payments, real estate taxes and medical expenses.
If you are at least 59.5, accelerate retirement distributions when you have excess deductions. If your standard deduction will exceed your taxable income, consider withdrawing more retirement funds than you need. By accelerating income when you have a zero or low tax rates, you'll avoid potentially paying more taxes in future years. I think most people agree that income taxes are going up, regardless which political party wins.
Our tax code is 73,000 pages long. Did you really expect a simple answer?
Take a 60-Day Loan: You can withdraw funds from your IRA for up to 60 days tax- and penalty-free as long as you return the funds to an IRA by the end of the 60-day period. The IRS looks at this as a nontaxable rollover. Just make sure that the funds are back in an IRA within the 60 days, otherwise it will be treated as a withdrawal that is subject to taxes and penalties if you are under age 50 1/2. Also, if you follow this strategy, you can only do it once within a 12-month period for the account in question.
One further thought: I find that people sometimes confuse the terminology: They will call their IRA a 401(k) and vice versa. If you are truly asking about your IRA (and not your 401k), then all of this information above is very good and thoughtful.
But if by mistake you are really referring to your 401(k), then you will be dealing with a different set of rules. First, your can actually take loans from a 401(k), which is vastly different (not necessarily better or worse) than the 60-day "loan" being discussed above. This idea is works with IRA's (if you follow those rules), but works very differently with 401(k)'s.With a 401(k), your loan provisions will not be considered taxable distributions at all, making withholding (as well as you age) a non-issue. These same provisions will also be subject to your employer's set of rules and restrictions which they set up inside your Plan (again, if it is a 401k you are asking about).
I just wanted to throw that into the discussion to cover that base. Good luck!
This is a great idea, but be careful with it. Presumably if you had the $15,000 you wouldn't be thinking about accessing your IRA. So the question to ask yourself is, once you've spent the $15,000, where is the cash going to come from to replenish it? If this is a loan to someone else, are you sure they are going to pay you back in time? Nothing is worse than a surprise tax bill at the end of the year, especially if you don't have the means for paying it.
Condo and Coop are two different structures. Be sure you know the difference. It makes a difference with lenders and programs. And be sure to have your own attorney review docs and represent you. Remember the attorney doing the closing represents the bank. Nice guy though he may be, your interests are different from the bank.
These are all valid points raised by Erik Evans which you should weigh carefully. I am not a fan of borrowing ANY money from a retirement plan. But as you asked this question in the context of an IRA, I wanted to make sure you had the answer to your direct question.
Well, that's a horse of a different color. If you're a first time home buyer you have an exemption on the penalty for the first $10,000. The withdrawal will be added to your income so you will pay income taxes on that. Some of this will be offset by the likely increase in your itemized deductions (namely mortgage interest and property taxes on your Schedule A next year). To be safe, you could have withheld an amount equal to your current marginal tax rate (both state and federal).
First Time Home Purchase
Up to $10,000 of an IRA early withdrawal that is used to buy, build, or rebuild a first home for yourself, a spouse, or you or your spouse's child, grandchild or other ancestor, may be exempt from the 10% penalty tax if you meet the IRS definition of a first time home buyer.
If both you and your spouse qualify as first time home buyers than each of you could withdraw $10,000 from each of your respective IRAs without paying the 10% penalty tax.
The distribution must meet all the following requirements:
It must be used to pay qualified acquisition costs (which includes reasonable closing costs) before the close of the 120th day after the day you received it.
When added to all your prior qualified first-time homebuyer distributions, if any, total qualifying distributions cannot be more than $10,000.