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yeah buddy, getting a 6K tax return

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  • SnoopyCool
    replied
    Sorry for the late reply; I just saw this thread again today.

    Whether you itemize or not, the 10% penalty can be offset by things like medical expenses that are at least 7.5% of your AGI. L2P answered that.

    There are other topics that can offset that pentalty, as listed in Pub 575.

    I've seen this several times the past few tax seasons, as it is a hard economy and people are hitting their retirement to help offset expenses.

    Leave a comment:


  • Like2Plan
    replied
    I cut some parts out of the explanation--just to clarify--this only applies to the extra 10% penalty.

    There is an explanation in the Publ 575
    under
    "Tax on Early Distributions
    (Most distributions (both periodic and nonperiodic) from 10 of your 2011 Form 1099-R to the amounts you reported
    qualified retirement plans and nonqualified annuity con- on the lines listed below, in the order shown, until you have
    tracts made to you before you reach age 591/2 are subject covered the entire amount in box 10.
    to an additional tax of 10%. This tax applies to the part of If you have taken a distribution from your designated
    the distribution that you must include in gross income.)
    ...For this purpose, a qualified retirement plan is A qualified employee plan (including a qualified cash or deferred arrangement (CODA) under InternalRevenue Code section 401(k))...
    Additional exceptions for qualified retirement plans
    The tax does not apply to distributions that are:

    From a qualified retirement plan to the extent you have deductible medical expenses (medical expenses that exceed 7.5% of your adjusted gross income), whether or not you itemize your deductions for the year,"


    Publication 575 Pension and Annuity Income

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  • disneysteve
    replied
    Originally posted by SnoopyCool View Post
    There are a few exemptions to that 10% tax penalty. For example - medical expenses greater than 7.5% of AGI will reduce it.

    Form 5329, Line 2.
    Can you clarify what you mean here? Medical expenses of greater than 7.5% of AGI are deductible against income regardless of whether or not you've taken an early withdrawal from a retirement plan. That deduction doesn't specifically target that 10% penalty, does it? It just reduces your tax burden overall. Anybody can take that deduction (assuming they are itemizing).

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  • SnoopyCool
    replied
    There are a few exemptions to that 10% tax penalty. For example - medical expenses greater than 7.5% of AGI will reduce it.

    Form 5329, Line 2.
    Last edited by SnoopyCool; 02-29-2012, 02:51 AM.

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  • PMMM
    replied
    I agree zero is better. I got back 2700 this year. I was having an extra 100 taken out for federal taxes. I deleted that and upped my 401K contribution by 3%.

    Break even is perfect in my view. I hate it when Uncle Sam uses my money for free!!

    Leave a comment:


  • greenskeeper
    replied
    Originally posted by Gina23 View Post
    I never celebrate when I get anything back in taxes. I adjust my withholding. But since we're bragging... the year (2009) I got the housing tax credit I netted $9,731 buddy!
    I agree. I always try to "break even" at tax time. After all a refund is your money that you loaned to the govt for zero interest. I'd rather have that money each month instead of a "refund" each year.

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  • PMMM
    replied
    25 years ago I took a paltry 10 K from a 401K and got hammered. Had to pay the 10% penalty plus the tax on the amount. It was distributed with no federal taxes taken out. the broker said or sure you can take this out it's your money. I didn't do my homework. It cost me dearly. And 25 years ago I didn't make a lot of money. I won't make that mistake again.

    But every situation is different. Like others said you will not escape the 10% penalty. That will cost for sure.

    Good luck I hope it all works out for you.

    Leave a comment:


  • Gina23
    replied
    I never celebrate when I get anything back in taxes. I adjust my withholding. But since we're bragging... the year (2009) I got the housing tax credit I netted $9,731 buddy!

    Leave a comment:


  • KTP
    replied
    Originally posted by NuggetBrain View Post
    How on earth is 6k paltry?
    It is only 3.5 ounces of gold or so.

    Leave a comment:


  • NuggetBrain
    replied
    How on earth is 6k paltry?

    Leave a comment:


  • maat55
    replied
    Originally posted by disneysteve View Post
    The only exception would be if this was a ROTH 401k. In that case, the money wouldn't be taxed but I think you'd still pay the penalty. I'm not positive about how that works though.
    There are some differences when it comes to early withdrawals between the roth and the roth 401k. My son-in-law has mentioned it a few times, but it has not fully sunk in. You do not get to claim constributions the same. This better explains it.

    401(k) IRA matrix - Wikipedia, the free encyclopedia

    Leave a comment:


  • MonkeyMama
    replied
    P.S. If using tax software, you put the type of IRA distribution in when you report the IRA withdrawal. Your 1099 should have a distribution code. Code 1 = early distribution. So putting the code 1 into the tax software should compute the penalty.

    Leave a comment:


  • MonkeyMama
    replied
    Actually, all of the above is quite possible. The tax code isn't so simple.

    But it does sound like the 10% penalty was missed? Some states get you too, so penalty can be more than 10%.

    Use Tax *Form 5329* to report 10% penalty on early withdrawal from IRA.

    Jpg nails it on the head. Sounds like you likely have no tax without the IRA withdrawal? Compare the with and without to see true tax hit. Sounds like some of the IRA withdrawal was tax-free (though not penalty-free) with your bigger tax situation.

    Individual situations will vary significantly - it's hard to get any useful tax advice in a forum like this with a line or two of information. OP has capital losses, rental losses and who knows what other deductions he may have. But, the 10% penalty is entirely unavoidable, which is why I think it's pretty safe advice to say, "avoid that penalty at all costs." I can't think of any reason why one should pay a 10% penalty. Maybe if you had a compelling reason and your tax rate is -0-. Then you know, what's a flat 10% tax? Beyond that though...

    Leave a comment:


  • disneysteve
    replied
    Originally posted by 97guns View Post
    ive lost only 12% by closing down the 401K's.

    they held over 11K from the total distribution of 47K which works out to a 25% withholding
    What makes you say you only lost 12%? Whether or not you had other deductions that reduced the bite of the 401k closures, you need to look at those closure penalties independently to know what doing that actually cost you.

    Leave a comment:


  • 97guns
    replied
    well this was just a rough draft, im taking a 5,000 loss on the rental properties and i have a running $3K deductable that i take every year for 20 years from a big dot com loss. i didn't see anywhere to input the penalty, wouldn't the penalty be withheld. they held over 11K from the total distribution of 47K which works out to a 25% withholding

    Leave a comment:

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