How much does the IRS typically tax IRA’s when you take out funds?

So how much does Uncle Sam get when you start taking some money out of your IRA or 401k accounts?

Keep It Simple Answer: In general, for a Traditional IRA or 401k, the withdrawals are taxed at your ordinary income tax rate.

This is how it is for the 80% of you reading this that fall into this category:

  • You have a IRA or 401k that you will need to get income from at some point
  • You will be over 59 ½ when you start taking the withdrawals
  • Or, you will have to start your RMD (Required Distributions) at 70 ½

That’s about 80% of you. So for you guys and gals who fit the above simple scenario……

Your withdrawals will be taxed at your ordinary income tax rate.

NOT capital gains rate.

Also it does not matter if your IRA is in mutual funds, annuities, stocks, bonds or anything else.

The IRA withdrawals are taxed at ordinary income tax rates.

IRS Publication 590 is the guide for IRA’s.

Here’s a link to it. http://www.irs.gov/pub/irs-pdf/p590.pdf

Now the complicated answer for the other 20%.

There are many different possibilities with this question.

  • Did you make any non-deductible contributions
  • Are you under 59 ½ when you make the withdrawal
  • Is it a Roth or a Traditional IRA
  • And a bunch of other stuff that your accountant is a lot smarter than I am on this subject

Since I am not a tax adviser my best answer is to talk to a good accountant about your specific situation.

DISCLAIMER: I am not a tax professional. Please consult with your CPA or tax adviser for all things tax related before doing anything. This post is for educational purposes only.

 

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