I do not have any other options for cash funds and the institution I am taking it out from told me to speak with my CPA regarding how much to allot for taxes, but I don't have a CPA.
That's a good question and depends on a few details. Regardless, you will pay a percentage on the withdrawal and the amounts in your traditional IRA are not taxed until they are withdrawn.
If you are 59.5 or older, you will be subject to income tax on the withdrawal. If you are younger than 59.5, you may face an early withdrawal penalty in addition to the tax. There are exemptions from the penalty under a few circumstances.
It's good to know the details before you make a decision as part of your tax planning. I'm sure the reason they suggested you speak with a CPA is because you will file (or pay) the taxes associated with your IRA at tax time (usually April 15). It doesn't have to be a CPA but could be any experienced tax professional. For 2014, IRA Distributions are handled on lines 15a and 15b of your individual tax return (Form 1040). You should receive a Form 1099-R showing the total amount of any distribution.
Hope this helps!
In addition to the great advice above, you can talk to your custodian about this. The custodian is the organization that holds the money in the account. You can ask them to withhold the taxes so you will not have to pay this later on. You need to speak to your accountant to give them the proper rate for the withholding. Some find this easier than paying a larger tax bill in the future. Good Luck
Each custodian has a different form to fill out for a distribution. The form will have a section for Taxes. They usually will give you a few choices such as (1) Opt out and do not withhold Federal Income Tax or (2) Elect a percentage to be withheld. They usually suggest a minimum of 10% or (3) Elect a specific dollar figure.
Company 401k plans require a minimum 20% Federal Income Tax to be withheld.
Like Anthony mentioned, it may be in your best interest to pay some taxes now, so that next year you will not be surprised with a larger tax bill than you can handle.
Sarah, it takes a little work, but here is where to find your specific income tax rates.
Federal tax - look at your tax return from last year and find the taxable income. If you used a 1040 form, it is line 43, if you used 1040A it is line 27 and if you used 1040EZ it is line 6. You will see instructions there as to where to find the tax rate for your income in the instructions. That is the tax rate you should use for federal taxes.
If you used a tax service, call and ask them, if you used tax software, you can look it up the 1040 by opening your tax return for last year.
Penalty - If you are under age 59 1/2, add a 10% penalty for an early withdrawal.
State tax - Go to the Tax Foundation website at http://taxfoundation.org/article/state-personal-income-tax-rates-and-brackets-2014-update (copy and paste this address into your browser) . There you will find the tax rate for your state.
Sarah, if you are confused don't have any tax withheld from your distribution. At the end of the year you will get a tax statement from your IRA custodian and you can use this information when you file your taxes next year. Please keep in mind that if you are under 59 1/2 you may pay a 10% penalty in addition to income tax so if you have any other options I would look into those.