Let’s Take A Closer Look at IRA Withdrawals
A Look at IRA Withdrawals
IRA’s are one of the best and most popular forms of retirement accounts. An Individual Retirement Account (IRA), is essentially a type of savings account that comes with tax breaks that can provide significant savings. There are numerous forms of IRAs, but finding the right one for you is a process that takes time and effort.
Once you have an IRA, what can you do to access your money? How does it impact things like taxes? These are important questions that you should be asking your financial advisor.
Here are a few things to understand regarding IRA withdrawals and taxes.
- Any money you pull from an IRA while still working or under the age of 59-1/2 will be taxed as part of your taxable income for the year and must be included in your year-end tax forms. If you retire 20 years from now, do you know what your tax rate will be? No, of course not.
- If you are younger than 59-1/2, your withdrawal could mean an additional tax of 10%.
- If your IRA is a ‘Simple IRA’ plan and you withdraw from it within the first two years, you’ll have to pay applicable income taxes as well as a 25% additional tax for early removal.
- You can avoid those penalties if the withdrawal is due to certain factors like medical expenses, death, education, or a first time home purchase.
- Withdrawal from an IRA could actually impact your Social Security Benefits if the amount increases your taxable income over certain thresholds. An income of less than $25,000 for individuals and $34,000 for joint filers won’t impact Social Security. If your withdrawal pushes your income above those levels, your Social Security benefits will be adjusted accordingly.
There’s no question that an IRA is a smart way to invest in your future. But it’s important that you understand how IRA’s work, including withdrawals and
how they impact you. The best financial advisor will be able to show you how to maximize the benefits and minimize any possible liabilities, with your unique situation in mind.
If you have any questions about your IRA or how you have minimize taxes on your future withdrawals, please contact us at 540-266-3100.