pricespector

Sorry to hear about your father. You are not alone when it comes to these decisions.

First, I would have told you that your accountant could have been asked by you, "what are the tax implications of each of my choices?" and could most likely have explained it clearly...had you asked. Well, hindsight is 20/20 and given the circumstances, it may not have been the first thing on your mind.

So, the lump sum distribution from the IRA will be taxed as normal income in the year that you took it. It is simply added to your normal annual earned income and taxed accordingly.

For example, if you made $50000 from your employment, plus you took out $50000 from the IRA: The IRS looks at it like you made $100k during the year and you will be taxed on the IRA at your highest income bracket. Fortunately, death proceeds do not have the 10% penalty normally associated with IRA withdrawals (if you were under 59.5 years old). Still, a $50000 IRA lump sum distribution could easily mean income taxes due in the neighborhood of $10,000-20,000...maybe slightly more or less.

Had withholding been selected, you would have had the opportunity to name the percentage of Federal and State tax that you wanted to be withheld. If no specific percentages are given. the default withholding rate is 20% for Federal taxes.