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I want to take out $10,000 from my simple ira. What should I plan on withholding for taxes?

I am under 59 years of age, and would like a estimated amount to plan for taxes.

Nov 18, 2013 by John from Omaha, NE in  |  Flag
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11 votes

First let me try and talk you out of this decision. If you want to ignore me just skip a few lines down and I will answer your question as best as I can. Taking funds stashed away for retirement before you retire is like robbing future you. Ultimately you will have less in your retirement years if your do this. The IRS will also have a field day with you assessing a 10% penalty in addition to your tax rate. It is very expensive. With that said, planning for taxes will need to start with the 10% penalty ($1,000.00). Gone. The next calculation will take a deeper understanding of your other income. If it is about the same as last year and your are taking roughly the deductions and exemptions, just divide how much you paid in taxes last year by your adjusted gross income plus $10,000.00. This will give you a rough percentage to withhold for the taxes owed.

A separate thought, as we are close to the end of the year, perhaps taking $5,000.00 in 2013 and the rest in 2014 may be beneficial.

Best of luck!!

Comment   |  Flag   |  Nov 19, 2013 from Kingsport, TN

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9 votes

It all depends. The tax on this withdrawal will be whatever your top marginal bracket would otherwise be in the year in which you take the money out. In addition, there will be a 10% penalty assessed as well. As such, in a hypothetical 28% Federal tax bracket, and a 6% state tax bracket, that would equate to 34% in Federal and State Income taxes, plus the 10 % penalty, for a total of: 44%. My normal advice here would be to find the funds elsewhere if possible... heck, even the local loan shark might cut you a better deal than that... If in doubt, consult your CPA or tax preparer for a realistic estimate...

Best of Luck, Rod

Comment   |  Flag   |  Nov 19, 2013 from Springfield, MO

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9 votes

As the others have said, if at all possible find the money from some other source. I doubt your SIMPLE IRA has been established less than two years but if so, the penalty for withdrawing money at that point would be 25% plus applicable federal and state taxes. At that point you’re paying more for taxes than you are actually receiving. I would suggest contacting a local advisor and potentially a CPA to discuss other options and strategies. Good luck!

Comment   |  Flag   |  Nov 19, 2013 from Bloomington, IL

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