I see a lot of people miscalculate their gross distribution from their IRAs when they have a specific net /after tax amount they need.
For example, you want to take a net/after tax distribution of $5,000 from your IRA, and you are in the 28% tax bracket. You want to calculate how much your gross distribution should be so that you end up with a net/after tax distribution of $5,000.
First subtract 1 -(minus) 0.28 on your calculator and you get = 0.72
Take the net distribution you would like so in this case $5,000 and divide it by 0.72 = $6,944.44
So if you take a distribution from your IRA for $6,944 and have 28% or $1,944.32 withheld for taxes, you would net $5,000 after tax from your IRA.
$6,944 was the gross distribution-$1,944.32 was the 28% tax withholding =$5,000 Net IRA distribution after tax.
$5,000/0.72 = $6,944.441 – tax bracket converted to a decimal = X
Net distribution/X = gross distribution.
A lot of people start with the net distribution ($5,000 in this example) and multiply it by the tax rate (28% in the example). If you do this you get $1,400.
They then add the $1,400 plus the $5,000 to come up with $6,400.
The problem is if you request a gross distribution of $6,400 multiplied by 28% it equals $1,792, and you end up with a net distribution of $4,608 which was not the desired outcome.
IRA Net‑to‑Gross Calculator
Enter the net amount you want to receive and your total withholding rate. We’ll compute the gross distribution required so your after‑tax (net) target is met.
Result
You might also be interested in reading Is Your IRA a Tax Time Bomb?
