How Much Is the IRA Taxed When Distributed?

Independent retirement arrangements are tax-deferred retirement savings accounts. Distributions are withdrawals from an IRA made by the owner after he reaches the age of 59½. These distributions are mandatory for the IRA holder beginning in the year he turns 70½ and must be made every year thereafter. Distributions are generally subject to ordinary income taxes unless they are nondeductible contributions. The monetary amount of the tax due depends on the income tax bracket of the IRA holder.

Deductible Contributions

Deductible contributions are contributions that were tax deductible when they were made. Your contributions are deductible if you have no retirement plan at work and you're younger than 70½ or if you do have a 401k or other retirement plan at work and your adjusted gross income is less than $89,000 for a married couple filing jointly or $56,000 for an individual. Deductible contributions are subject to phaseout above an AGI of $89,000. The deduction for your traditional IRA contribution is phased out completely if your AGI is at least $109,000 for a married couple filing jointly, at least $66,000 for an individual or at least $10,000 for a married person filing separately.

Tax on Deductible Contributions

Deductible contributions are taxable at the time of a distribution, but if the distribution is made before the age of 59½, the contributions are also subject to the 10 percent early withdrawal penalty. Distributions that consist solely of deductible contributions are fully taxable in the year of the distribution as ordinary income at between 10 to 33 percent based on your AGI.

Nondeductible Contributions

Some or all of the funds in your IRA may be from nondeductible contributions, such as funds from a rollover of after-tax amounts to the IRA, and therefore subject to either partial or no taxation. Generally, Internal Revenue Service Form 8606 is used to report nondeductible contributions and should be kept for calculating the nondeductible portion of a distribution at a later date.

Reporting Distributions

Taxable distributions, including early distributions, are reported on Form 1040, Line 15b; Form 1040A, Line 11b; or Form 1040NR, Line 16b. If only part of the distribution is taxable, enter the total amount on Form 1040, Line 15a; Form 1040A, Line 11a; or Form 1040NR, Line 16a; and enter the taxable part on Form 1040, Line 15b; Form 1040A, Line 11b; or Form 1040NR, Line 16b. Distributions cannot be reported on Form 1040EZ or Form 1040NR-EZ.