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If you have a SMALL amount of money in a rollover IRA from a previous employer (was a 401. K), is it really "bad" in the long run to just withdrawal that money? As long as you pay the taxes on it, does it really "hurt" anything if it is not a huge amount?
Updates
+1 y
And what percent of taxes should you go ahead and withhold upfront when making the withdrawal for your state and your federal? I'd want to withhold SOMETHING now to avoid paying more later. Should I just do the basic minimum they offer, or should I do more? I know obviously my overall income will be a factor as it always is for tax season. And yes, I do have another job I've been at for awhile now. Will I get a separate form from the IRA withdrawal in addition to my usual W2s next tax season?
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1Opinion
It's because of the lost interest, not the taxes/fees. The way compounding interest works is that it accelerates with time. So you're depriving yourself of benefit from that interest by taking money out sooner.
So as long as you're ok with that, it won't be a big issue then? I have a 401. K with my new job (I've been there awhile now - this rollover IRA is so old, I had to activate it again!). There is NOT much money in this old account at all. I figured go ahead and take the money early since I already have a 401. K with my current job.
Any advice on the percent to withhold for your federal and state taxes? I want to go ahead and withhold something now to make tax season easier next year. I also know I'll obviously still need to turn in my usual W2s for this year next season as well and that this small amount of money will go towards my overall income for this year. I just figured go ahead and at least do the minimum they request NOW to have something withheld at least. I just don't know what percent would be best. I don't want to go too high but I don't want to be way too low either.
If you're okay with missing that interest, it shouldn't be any problem at all. As far as taxes; you'll have to talk with your accountant or financial advisor. I don't know your situation, so I'd rather not say anything that could lead you astray.
Ok, I looked up basic info online and I withheld just a little more than what they had set as the "minimum". I feel that was probably enough and if not, I should definitely not owe very much more at all. The amounts I withheld seemed reasonable for the amount since it was not especially big.
You'll probably be fine then! Just hold onto your receipts and any other documentation of the transaction. You'll probably need to include that on your tax refund in 2025.
I printed off a copy of what I requested, what I withheld for state/federal, and what was given to me to keep after the withholdings.
The taxes make it not worth having an IRA because the loss is more than the growth now and later.
So it's probably best just to take the money from the rollover IRA?