IRA cashed out, how much will i be taxed?

Question

I rolled over my 401K into an IRA when I left my job to be a stay at home mom 4 years ago. since then I made have not made hardly any money off it. times are tight right now and i cashed it out to take care of a few bill and to put the rest as a down payment on a VERY needed new vehicle. the total amount of the IRA was near 9500. they took 950 for the penalty fee. so how much will i get taxed on the 8500 i got when tax season rolls around? i earn no income, being a stay at home mom. just curious so i can try to set aside some money when the time comes.

Answer 1

Traditional and Roth IRAs are established by individual taxpayers, who are allowed to contribute 100% of compensation (self-employment income for sole proprietors and partners) up to a set maximum dollar amount. Contributions to the Traditional IRA may be tax deductible depending on the taxpayer's income, tax filing status and coverage by an employer-sponsored retirement plan. Roth IRA contributions are not tax-deductible.

Answer 2

It depends.  You say that you are a stay at home mom.  So, I'm assuming that you have a husband who is working and that you probably file a joint tax return b/c that typically would be to your benefit.  

Sorry dear, you will be taxed on the whole $9500 as ordinary income, not the $8500 that's left after they took out your 10% penalty.  The penalty is above and beyond the income tax.

So, without knowing your total family income (if filing jointly), deductions, exemptions, etc. then I can't tell you an effective tax rate to estimate the tax on $9500.  There are plenty of income tax calculators online to help you out.  Otherwise, I suggest being conservative and estimating 20-25% of the $9500 for taxes.  Hopefully, once you plug in your overall financial situation into the picture, it will be less than that.  Good luck!

Answer 3

If you are under 59 1/2, you will most likely have to pay the 10%

penalty to which you referred.  On top of this, you will also have to add

the $9500 distribution to your income, and pay tax on it at your ordinary income rate.  For example, if you are in the 15% bracket, this will mean an additional tax of $1425 in addition to the $950.  It may be a higher or lower percentage, depending on your income. There may also be some state tax due, but that depends on which state you live in.  There are a few exceptions to the 10% penalty (large medical expenses, first-time home buyer, higher education expenses, etc), but I do not know if you would qualify for any of these.

As always, consult with a professional tax preparer for specific answers.

CPAGreg

Answer 4

You have NO income? How do you live and eat? How can you afford to put a down payment on a car and then make payments? Are you married? If so, the proceeds (all $9,500 of it) will be taxed at your husband's marginal (highest) tax rate.

Answer 5

Depends on your total income, or your total joint income if you file a joint return, so no real way to answer that.  If you have NO other income, then the 10% penalty would be all you owe.  If you do have other income, then the entire amount withdrawn, not just what you got after withholding, is added to your other income to figure your tax.

Answer 6

You will be taxed at your 2008 rate for your regular income.  If you are in the 10% tax bracket, you'll pay$850.  With no income you may be very little.