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Getting Money Out Of An IRA

Tax Aspects Of Withdrawals From A Traditional IRA

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Withdrawals do not have to be in cash. You can withdraw securities rather than cash from your IRA. Note: as you'll see in the section below, there are times when withdrawals have to be made.

The law does not distinguish between contributions and earnings when money comes out of an IRA.

If all of your contributions made to the IRA were deducted from your income taxes, then all of the distributions will be subject to income tax as ordinary income for the year of the withdrawal. The law does not distinguish between contributions and earnings when money comes out of an IRA. It's all taxed as ordinary income.

If some of your contributions were made with after tax-money, then some of your withdrawal will not be subject to income taxes. The amount that is taxed will be based on the ratio of non-deductible contributions to the total account value as of the last day of last year.

For example: Herb S. made both deductible and non-deductible contributions to his IRA. The total amount of his lifetime non-deductible contributions is $10,000. As of December 31, 2009, his IRA was valued at $100,000. He withdrew $3,000 from the account. To find the amount of the withdrawal that is not taxable, Herb would first divide 10,000 by 100,000, getting 1/10. Then, he'd multiply 1/10 by $3,000 getting $300. This is the amount of Herb's distribution that is not taxable. $2,700 of the distribution is taxable.

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