Do You Pay Taxes on a Traditional IRA When it Matures?

A traditional individual retirement account (IRA) offers tax-deferred status for your retirement savings. This means that money that you contribute can be deducted from your income in the year the contribution is made, but will be taxed when you take it out.

Function

When you take a qualified withdrawal from your traditional IRA, you must include the amount of the withdrawal as taxable income using either form 1040 or form 1040A.

Size

The withdrawal from your traditional IRA is taxed as ordinary income, which means it will be taxed at your marginal income tax rate. For example, if you fall in the 25 percent income tax bracket in the year you take a $3,000 distribution, you will have to pay $750 in taxes on the withdrawal.

Considerations

If you made nondeductible contributions to your traditional IRA, the portion of your distribution that comes from nondeductible contributions will not be included as taxable income. When you receive your 1099-R from your financial institution, the form will tell you how much is taxable.

References

• Internal Revenue Service: Publication 590
• Motley Fool: All About IRAs: Traditional vs. Roth