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When an IRA has early withdrawals that are subject to the 10% penalty tax, and we withdraw additional money from the IRA to cover the 10% taxes, would those withholding amounts also be subject to the 10% penalty tax? – IBA Compliance Connection

IBA Compliance Connection

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When an IRA has early withdrawals that are subject to the 10% penalty tax, and we withdraw additional money from the IRA to cover the 10% taxes, would those withholding amounts also be subject to the 10% penalty tax?

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We believe that any amounts distributed from the IRA, including amounts distributed to cover taxes, are subject to the 10% penalty tax (unless an exception applies). See IRS Publication 590-B, Distributioins from Individual Retirement Arrangements (IRAs) (“Generally, if you are under age 59½, you must pay a 10% additional tax on the distribution of any assets (money or other property) from your traditional IRA”).