Non-Deductible IRA Withdrawal
If a pre 59 1/2 individual takes a small distribution from her non-deductible ira, how does the taxation work for that distribution? What is taxable and is there a 10% exise penalty??
Thanks
If a pre 59 1/2 individual takes a small distribution from her non-deductible ira, how does the taxation work for that distribution? What is taxable and is there a 10% exise penalty??
Thanks
Permalink Submitted by BruceM on Wed, 2008-08-06 22:02
If you are speaking of a traditional IRA, then withdrawals prior to age 59.5 will ibe includable as ordinary income and ncur a 10% penalty on the pretax portion of the withdrawal, unless one of the 9 or so exceptions to this penalty apply, and report it on form 5329. If your TIRA contains after tax contributions, aka ‘basis’, then your withdrawal will be prorated between the pre-tax and after-tax portions of the IRA based on the account’s value at the end of the year the withdrawal was made. This is calculated on form 8606.
If your withdrawal is from a Roth IRA, then there is no tax or penalty providing the amount is less than the total of past Roth contributions less any past withdrawals. Age doesn’t matter. But once this contribution basis is withdrawn, (assuming there have been no Roth conversions in the past 5 years), then all additional withdrawals will be considered to be non-qualified and therefore will be subject to inclusion as ordinary income AND subject to the 10% early withdrawal penalty.
BruceM