IRA early distribution
I have a client who pays quarterly estimates. They have a pre 59.5 withdrawal from their regular IRA. Do they need to include the 10% penalty in their tax estimated payments, or can they deal with the penalty at final tax return time?
Thanks
Permalink Submitted by Alan Spross on Thu, 2008-12-04 17:58
The penalty is just another part of the total tax liability and obviously increases it. However, the underpayment rules provide some safe havens against underpayment penalties. One of these is payment equal to the prior year tax liability (more for higher incomes). If one of the safe havens is met, then there will be no penalty, the client will just have to pay any amount due in April.
If the client knows they will be short and not meet any of the safe havens, it is probably too late to increase any withholding sources, but if they send in the extra amount in the Jan 15th estimate, they will at least stop the interest clock from running.