Thanks a lot for all the responses.

Just to clarify some queries put forward by some
respondents: last few years, I have filed my returns as
Married Filing Jointly and claimed exemption for one child,
though my wife does not work. In addition to the IRA
withdrawal, I may have investment income of no more than
$1K.

Thanks,
Jay.

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In round numbers, you could have $19600 income and pay not
income tax, but you will have to pay $1960 in a penalty plus
any state and local income tax that you might have.

Missy Doyle

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"Jay" <jay6447[at]hotmail.com> wrote:

- quote -

Assuming withdrawals are not over $ 25K:
Just look up the standard deduction for a joint return and
add the amount allowable for your exemptions. If your
withdrawal exceeds that amount, the tax will be 15% of the
excess over the total of the exemptions and std deduction.

If you itemize, then use the total for itemized deductions
instead of the standard deduction. The 10% penalty would
apply to the total withdrawn.

If you

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Jay wrote:

- quote -

I hope I understand right; you are single with one child.
(Not married filing jointly).

In your case, you file 'head of household' and enjoy a
standard deduction of $7,300 and 2 exemptions 2 x $3,200 =
$6,400. Total of $13,700 to pay no income tax.

$10,000 withdrawal = no income tax (just 10% penalty).
$20,000 withdrawal - $13,700 = $6,300 taxed at 10% = $630
tax (plus your penalty)
$25,000 withdrawal - $13,700 = $11,300 taxed at (10,450 * 10% + $850 *
15%) = $1172.50 (plus your penalty)

You see, the 10% bracket ends at $10,450 for head of
household, so that last $850 will cost you a bit more.

see http://www.fairmark.com/refrence/2005reference.htm for
good details where I pulled these numbers from. It will help
you decide what to do.

Good luck,
JOE

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- quote -

For 2005, your standard deduction is $10,000 MFJ, and your
person exemptions amount to $3,200 apiece, or $9,600. So
the first $19,600 of your income is not taxed. The rest
would be taxed, starting at 10%. But if your child is under
17, you are also entitled to a child tax credit of up to
$1,000. So, according to my calculations, you could withdraw
up to $29,599 and still owe no federal income tax. You would
of course owe the 10% penalty of $2,960.

Fine print - You may owe state tax; this assumes no other
income; if you have ANY earned income you may be eligible
for the Earned Income Credit; etc.

--
Don EA in Upstate NY

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Jay" <jay6447[at]hotmail.com> wrote:

- quote -

$1,000

- quote -

$2,000

- quote -

$2,500

Assuming the child is under 17 as of 12/31/2005, you'll have
no income tax due for total income of $29,600 or less. The
10% penalty operates independently of income tax, so you'll
still owe that.

--
Phil Marti
Clarksburg, MD

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Your information is a little sketchy. You indicate that you
are filing MFJ. Will your spouse have income?

Any early withdrawal is usually subject to a 10% penalty on
taxable distribution amount. This tax is added on AFTER
other taxes are determined, meaning that someone with no
taxable income or tax (due to exemptions, deductions,
credits), still has to pay the penalty. The only way to get
around it would be to qualify for earned income credit,
additional child tax credit, or have enough withholding to
cover the penalty amount.

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"Jay" <jay6447[at]hotmail.com> wrote:

- quote -

Well, if the child is under 17 on 12/31/05, then you can
withdraw up to just under 30K without any tax liability
other than the 10% penalty due to the Child Tax Credit.
This is assuming you have no other taxable income. If you
AGI is more then 30K you will have some tax liability other
then the penalty.

--
Kathy Morgan EA
H & R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN C Company
Louisiana Army National Guard
Baghdad, Iraq

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"Jay" <jay6447[at]hotmail.com> writes:

- quote -

Including the penalty, $0, because the penalty is
always imposed no matter how little other income you
have.

Not including the penalty, and assuming you're
taking the standard deduction, and ignoring any
child tax credit or earned income credit you
might be eligible for:

- quote -

$0 (not counting the penalty)

- quote -

$40 (not counting the penalty)

- quote -

$540 (not counting the penalty).

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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I will be filing jointly with 1 dependent (child). I have
practically no income for 2005, but will have a premature
withdrawal from my IRA and pay 10% penalty.

Now, approximately what amount could I withdraw to avoid
any tax liability?

Withdraw $10K - what will be tax liability?
Withdraw $20K - what will be tax liability?
Withdraw $25K - what will be tax liability?

I am not looking for exact numbers but trying to get
an approximate idea.

Thanks,
Jay

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