Taxes on IRA Withdrawal

[zipastitch]

I will be starting to withdraw from my IRA next year (I am over 59 1/2).  If I do not have my financial planner withhold income taxes, and pay all of the taxes at the end of the year, will I be liable for any fines or penalties?

[xmasbaby0]

Maybe--if you owe over $1000 at tax time, then you are subject to penalties.  We do not know how much you will be taking out of your retirement account or what other income you have that includes tax withholding.

[PaulaM]

No, there is no fine or penalty for electing not to have taxes withheld on your IRA distribution, but you may wish to consider the option so you do not receive a large tax bill when preparing your return. 

However, the danger lies in not having enough paid in to cover your tax bill for the year. In that case, you could be subject to an underpayment penalty.

From this IRS link:

IRAs: An IRA distribution paid to you is subject to 10% withholding unless you elect out of withholding or choose to have a different amount withheld. You can avoid withholding taxes if you choose to do a trustee-to-trustee transfer to another IRA.

[dmertz]

Underpayment penalties are calculated on a per-tax-quarter basis because the US tax system is a pay-as-you-go system.  Even if your tax return shows a refund you can still have an underpayment penalty if you have an insufficient amount of tax withholding and quarterly estimated tax payments made throughout the year.

If taking IRA distributions and not moving the money to another retirement account will be a regular, ongoing occurrence, you should have taxes withheld either from the IRA distributions or from some other income source sufficient to cover the increase in tax liability resulting from the IRA distributions.

[hagebug]

How do I report a nonductable IRA withdrawl? I am thinking I need to use a form 8606 to identify the nondeductable contributions-correct and how do I access this form from Turbo Tax?

[Critter-3]

In the retirement entry section ... after you enter the 1099-R you need to continue thru all the following screens to indicate your cost basis.   If you make a new contribution then you should enter that first and then enter the 1099-R.