Will you pay taxes on your IRA withdrawal? Can you move money from your company plan to your IRA without paying taxes? Are you eligible for a tax deduction when you make an IRA contribution?
IRA tax rules are complex. You'll find answers to almost all of your IRA tax questions within the articles below.
How are IRA withdrawals taxed? Normal IRA distributions (meaning you take the IRA distribution when you are over age 59 1/2) are included in your taxable income in the calendar year in which you take the IRA distribution. The amount of tax you pay will depend on your total income and deductions for the year. Learn more about IRA taxes on withdrawals and how they are calculated at the link above.
An early withdrawal is an IRA withdrawal taken before you reach age 59 1/2. Early withdrawals are subject to a 10% penalty tax in addition to ordinary income taxes - unless you qualify for an exception. The article at the link above explains the exceptions to the 10% penalty tax. There are no exceptions to paying ordinary income tax on the amount withdrawn.
Here's the simple scoop about ROTH IRA distributions: most of the time ROTH IRA withdrawals will be tax-free. As a matter of fact, you can always withdraw contributed amounts (this is different than converted amounts) at any time with no penalty or taxes due. Find the details at the link above.
Too many people think if they move money out of their retirement plan they will pay taxes. If they move them to an IRA using an IRA rollover, no taxes will be due. When you rollover a qualified retirement account (from a pension plan, 401(k), or 403(b) for example) to an IRA, or transfer funds or investments from one IRA to another, if done correctly, it is not a taxable event. The article at the link above contains eight frequently asked questions about these types of IRA rollovers and transfers.
Can you take an IRA deduction for the amount you contribute to a traditional IRA? It depends. If you are not a participant in a company sponsored retirement plan, and you have sufficient earned income, you may take an IRA deduction for contributions to an IRA. Contribution amounts are set by the IRS each year. Details about exactly who is and is not eligible to take an IRA tax deduction can be found in this article.