If I have $85,000 in a beneficiary IRA, how much in fees and penalties would I pay if I took out $50,000 to put a down payment on a house?

by Timothy C. Hilbert, CPA | Dec 07, 2018
askacpaicon

If I have $85,000 in a beneficiary IRA, how much in fees and penalties would I pay if I took out $50,000 to put a down payment on a house in California? 

For federal income tax purposes, someone who inherits an IRA will pay federal income tax on any withdrawals. The early withdrawal penalty of 10 percent for distributions prior to age 59 ½ does not apply to inherited IRAs. 

Pennsylvania does not tax distributions from inherited IRAs, nor does it penalize any IRA distributions if taken before 59 ½ under any circumstances.

The question, however, concerns California, and the laws there are different. California does add a 2.5 percent penalty for withdrawals before age 59 ½, and I don’t see any exceptions. California also requires state income tax to be paid on IRA distributions.

Answered by: Timothy C. Hilbert, CPA, is director of audit and accounting at Kreischer Miller in Horsham, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Ask a CPA

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.

Search