Traditional IRA Withdrawal Tax

Withdrawals from traditional IRAs are taxable.

Traditional individual retirement accounts (IRAs) offer tax-deductible contributions and tax-sheltered growth for as long as the money remains in the account. Withdrawals from traditional IRAs must be reported as taxable income.

Tax Rate

Traditional IRA withdrawals must be added to your total income and taxed at your marginal tax rate.

Time Frame

Qualified withdrawals can only be taken from a traditional IRA after age 59 1/2. Early withdrawals are subject to a 10 percent tax penalty if they do not qualify for an exception allowed by the IRS. Even if your early withdrawal qualifies for an exception, income taxes are still owed on the money.

Process

After withdrawing funds from your traditional IRA, you will receive a form 1099-R that documents your total withdrawal and the taxable portion. If you have made nondeductible contributions to the IRA, the portion of your withdrawal that came from the nondeductible contributions is tax-free.

Misconceptions

Traditional IRA withdrawals count as unearned income, which means that the IRS does not levy Social Security or Medicare taxes on the money.

Warning

Starting in the year you turn 70 1/2, you must take required minimum distributions from your traditional IRAs or face a tax penalty equal to 50 percent of the amount not withdrawn.

References

• IRS: Publication 590
• State Farm: Traditional IRA

Resources

• Smart Money: Tapping Your IRA Penalty-Free