How to Calculate Taxes Owed on Early Withdrawal from an IRA
People set aside their fund in IRA for their retirement. But, unforeseen circumstances sometime force people to withdraw money from IRA at premature state. This premature withdrawal causes to impose tax and penalty upon the money withdrawn. Before you are taxed and penalized for early withdrawal of fund from your IRA account, it is better to calculate the amount you will have to incur loss. Anyone who is under debt settlement program, may use his IRA fund to make regular payment and pay down his outstanding balance.
For calculation, first you need to be clear that you will be imposed taxes on your premature withdrawal. It has to be remembered that there are some situations when you may withdraw fund without being penalized. When you are half past 59 years of age, then your withdrawn money will not be subject to tax fines.
You should learn when or in which situation one can get exemption from penalty taxes. If one gets physically or mentally disabled, one needs not to pay 10% fines on withdrawn money. If you transfer the fund to a new account or use it to pay health insurance, you will not be imposed 10% tax fines. If you are to pay college tuition fees or medical bills while unemployed, you can get certain tax relief.
When you are gong to file tax return, you have to mention the amount of penalty fines in your tax return form. There are two forms- one is form 1040 and another form 5329. You can make calculation each of these forms.
Now, you need to calculate your tax incurred on form 1040. You have to multiply the taxable amount with 10%. Then, put the figure on the 60th line of your form 1040. Once you are done with your calculation on form 1040, then you have to mention ‘no’ in the 59 line that will indicate that you no longer need form 5329.