Does your state charge you- IRA early distribution?

  • Posted by a hidden member.
    Log in to view his profile

    Dec 08, 2015 7:14 AM GMT
    Wow, has just found out my state, California, charges a 2.5% penalty for early withdrawal of a IRA. That is in addition to the usual 10% penalty for Federal. Combine that with the usual Federal and State tax for an early withdrawal. Interesting, the tax software I used didn't imply any penalty for my state icon_mad.gif

    OMG icon_eek.gif

    Wow, I had no idea, just got an audit from state saying I owe back penalty for a previous year, with interest icon_eek.gif


    Does your state charge for this? And why would the state of California charge their own penalty? Its only the wealthiest state in the entire country, its not like they need the extra money, I am very confused, now I have to come up with this extra money expense icon_confused.gif


    Form 3805P (there is nowhere indicated on tax return form 540 where to put this "additional tax"), this Form 3805P says to add this to line 63, Other taxes and credit recapture (see page 13)

    https://www.ftb.ca.gov/forms/2012/12_3805pins.pdf
    Tax2014CA_14_3805p_20141215_Page_1.png
  • Posted by a hidden member.
    Log in to view his profile

    Dec 08, 2015 10:15 AM GMT
    You should direct your questions to a CPA. Makes me wonder why you chose an early distribution in the first place.
  • Posted by a hidden member.
    Log in to view his profile

    Dec 22, 2015 12:51 AM GMT
    thanks for the OP's advice
    everyone should ck local state law before filing this situation. Google is a great resource for tax law.

    sorry about your tax situation. Sounds clear cut enough tho so would be my guess (only a guess) there is nothing you can do but pay it.
  • Suetonius

    Posts: 1842

    Dec 31, 2015 6:22 PM GMT
    California is (IMHO), the highest tax state in the USA. Everyone with an income over about $40,000 a year (all of the middle class) is in the highest tax bracket (except for the tax on millionaires, which is a temporary tax set to expire soon.)

    >>OP Sorry you were taken by surprise. California also has a lousy tax information system - lots of complicated taxes (trying to squeeze out the last drop) but not very well described in forms and publications. (The state having been run by a very greedy democratic machine in the legislature for decades, which has left no stone unturned in a ceaseless drive to increase tax revenues.) They got very "creative." Like for a speeding ticket - the legal amount of a California speeding ticket is about $100, but you have to pay an extra $300 in "fees" for the privilege of being fined.

    There might be circumstances which would excuse penalties for an early IRA withdrawal - ask a CPA. Or consider moving to a state without an income tax (like Nevada) before making a withdrawal. Lots of the very rich Californians move to Nevada before cashing in big capital gains (which California, unlike the federal government, taxes at the same rate as ordinary income).
    icon_mad.gif
  • Posted by a hidden member.
    Log in to view his profile

    Dec 31, 2015 6:42 PM GMT
    Suetonius saidCalifornia is (IMHO), the highest tax state in the USA. Everyone with an income over about $40,000 a year (all of the middle class) is in the highest tax bracket...


    https://www.ftb.ca.gov/forms/2015_California_Tax_Rates_and_Exemptions.shtml

    See "Schedule X" and "Schedule Y". $40k-$50k is the dead-center tax bracket for single/separate (X) and double that for filing married (Y).

    Are you talking about something else? Not saying CA taxes aren't high, but $40k does not place you in the highest bracket.