Customers commonly use the IRA withholding process to meet future tax obligations from other sources of income such as: capital gains, dividends, rental income, and self-employment income.
Example: Bob is 62 and runs a consulting business. He withdraws $20,000 from his Roth IRA, which he opened when he was 50. He doesn’t owe any tax on this withdrawal because he is over age 59.5, and his account has been open for at least 5 years. Even though Bob’s Roth distribution is tax-free, he could still elect to withhold the entire $20,000 (100%) to cover taxes he expects to owe on $50,000 in self-employment income from his business.
Betterment is not a tax advisor, and the information provided here should not be construed as tax advice. It should only be used for informational purposes. Please consult a qualified tax professional to determine the rules that apply to your individual tax situation.