Satisfied Customers: 111
Experience: Licensed CPA. 10+ years experience.
replied 2 years ago.
Welcome and thank you for your question. I'll do my best to provide an informative answer. Please let me know if you need any clarification.
The 2013 tax tables have not been issued yet. There are many possible tax changes coming for 2013 if Congress does not vote to keep the current tax rates in place. For example, the top rate could increase from 35% to 39.6% in 2013. Here is a good summary of the possible tax rate changes:
Keep in mind the $600,000 distribution would be added to any income you already earn. Assuming you earn zero other income, and the $600,000 is your only income, the tax (based on current lower rates) would be approximately $187,000 if single, or $180,000 if married filing joint. The tax is so high because much of it is taxed at the maximum 35% rate.
Here are the IRS tax tables for your reference:
If you are under age 59 1/2, there would be
an additional 10% penalty on the amount distributed over $10,000 (first $10K is generally exempt from penalty for first time home purchase). So the penalty would be $59,000 in addition to the tax.
An option to reduce the amount of the tax would be to take some of the distribution at the end of 2012 and some in 2013 because it would keep your income lower (i.e. pay more at the 28% rate instead of the 35% rate.
Still, the tax is so high it would probably be best to take out only enough for the down payment, and obtain a mortgage for the balance. Mortgage rates are at all-time lows right now. If you need to distribute some of the IRA each year to make the payments, at least you would stay in a lower tax bracket and pay at a lower rate. Additionally, the money remains invested over many years and hopefully the earnings on the money help offset the distributions.
Thanks again for your question and if you need further assistance please let me know.