Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 4
When we cash out the IRA, will they take out taxes?

It is not required. But you can request it.

Is there a chance that we could owe more taxes than what they withhold?

It is almost certain that the taxes withheld will not exactly equal your tax liability for the IRA withdrawal. It might be too much. It might be too little. It may be close, or it may be way off.

All of us agree that while we want to give a benefit to our other cousins, we don't want to be holding the bill when tax time comes around.

Then there's the difficulty of deciding exactly what IS your tax liability for the IRA withdrawal. The tax code taxes your total income, not the bits and pieces. Any one item can have a ripple effect throughout your whole tax return.

Perhaps the two of the more reasonable methods are: determine your marginal tax bracket (including your state taxes) and apply that tax bracket to the income and come up with a tax amount. Or redo your return without the added income from the IRA withdrawal (and whatever other implications it had around your tax return). Compare the total tax bill with and without that income to determine your tax on that income.

In any case, you are left with an estimate of your tax bill for that income. Not an exact calculation (since that is not possible), but an estimate based on reasonable assumptions.

And if each of you shared the IRA distribution with your two cousins on an after-tax basis, that would be about as fair an arrangement as one could come up with.

--Peter
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.