Client X has a distribution from his IRA every other month, but he is not 59½. He chooses to withhold 20% for federal and 2% for state taxes. Is the higher tax withholding because of the additional penalty? What is the penalty?

The taxes withheld are of the client’s choosing, usually based on what is advised. There is a 10% penalty (IRS rule) in addition to the taxes withheld. Some 401ks make have a penalty higher than the 10% required by the IRS.

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