Posted: 10/14/2009 12:51:42 PM EDT
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I have recently changed jobs and have about $7,500 I am rolling over to my bank. I know when you pull
the money out early, you incur a 10% penalty, plus a 20% withholding. My question is, will the withholding be considered the same as income withholding at tax time? Can you get some of it back? The reason I ask, I am a Senior in college and I can claim the Lifetime Learning Credit. The past 2 years, I have received 100% of my withholding back in my income tax return. If the 20% witheld from my IRA will be considered the same as income withholding and I get it all back, I am thinking of cashing out the IRA to payoff credit cards (~$3,000) and keep a couple grand around for living expenses, books, etc. for my final semester in college. Anybody have any experience with this? |
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Refer here to Publication 590:
http://www.irs.gov/pub/irs-pdf/p590.pdf Page 25, 53, 56, etc. should answer your question. Just use the search function with keywords to find "10%", "20%", "withholding" or whatever you want to use. If you are under age 59 1/2 and you receive a distribution, you will be penalized 10% of the distributed amount, as you mentioned. Any distribution requires a 20% withholding amount, but the 10% penalty is half of that amount. The full amount of the distribution is included in your Gross Income. The withholding amount to be returned is completely up to what you end up owing on your taxes for the year. If you figure up that you will certainly not owe any taxes for the year, you will get the withholding amount back, just as you do with the federal income tax withholding from your W-4/on your W-2. |