Should You Take an IRA Distribution to Avoid Underpayment Penalties?
In addition to having extra withholding on wages, I plan to use another strategy. I am going to take a distribution from an IRA, and then replace the money within 60 days.
Like many others, I like to pay my taxes as late as possible. I don't even mind paying interest, as I don't find it to be an expensive source of funds. But I do want to stay away from any penalties. I understand the withholding requirements in the Internal Revenue Service
-- Pete Mazza
Pete,Taking a distribution from your IRA is a perfectly reasonable way for some people to avoid getting hit with a big underpayment penalty, which, by the way, is just interest. But be aware that if you don't have extra cash lying around to replace that distribution within 60 days, you could be looking at a huge tax hit. When you take a distribution from your IRA, you withdraw money from your retirement fund. So if you believe this is the right option for you, call your IRA custodian to request a distribution from your IRA account and have the entire thing withheld for taxes. Since the Internal Revenue Service assumes that those taxes were withheld evenly throughout the year, you won't get penalized for having a lump sum withheld. Big note: If you're under age 59 1/2 -- the earliest age you can take withdrawals from your IRA tax- and penalty-free -- you'll need to replace that distribution within 60 days to avoid paying both an early withdrawal penalty and ordinary income tax on the amount withdrawn. So you need to have extra cash readily available to benefit from this procedure. As we discussed in Saturday's
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