Q. Let’s say I make a partial withdrawal for $50,000 in late November to make a down payment on a new house, and then retire in December. And automatically withheld is $10,000. I also still fall into the 28 percent tax bracket. Will that remaining $40,000 be taxed at 28 percent or 8 percent?
A. The tax cost of the income from withdrawal is figured without regard to the withholding that was taken from the withdrawal. The entire amount of the withdrawal is added to your tax return as ordinary income, your total income tax for the year is then calculated and you are given credit against that tax bill for any withholding that was contributed during the year.