Tax ?/ Pension Early Withdraw Penalty?

Question

We were forced to take an early withdrawal of our pension funds and closed the account. Of course, now that tax time is here our penalties for withdrawing early are incredibly high. Does anyone know a way around paying such high taxes on this withdrawel? I'm wondering if we agree to pay the pension administrator back if maybe we can avoid paying taxes. Any insight or ideas you can give me will be so much appreciated. Thanks & God Bless You.

Answer 1

You have 60 days to put an amount equal to or less than the amount withdrawn into an IRA. The difference between what you withdraw and what you put into the "Rollover IRA" is still taxed.

Example: the amount on box 1 of your 1099-R is $10,000 (I don't care how big your check was for) and you put $8,000 into a Rollover IRA within 60 days, you will only have to pay tax on the $2,000 difference.

Rollovers are explained on page 26 of the attached document.

There are other ways to avoid the 10% additional tax, but they are too numerous to mention here. Check out the attached document starting on 29, "Special Additional Taxes".

Answer 2

Sorry but there's not many ways around the 10% penalty. Very generally:

1. The holder of the account became totally and permanently disabled.

2. The withdrawl was used to pay for uninsured medical expenses that exceeded 7.5% of your Adjusted Gross Income, even if you did not itemize those medical expenses.

Depending upon the type of retirement account there may be other ways to avoid the penalty such as a first time home purchase or educational expenses. Not all retirement accounts are eligible for that treatment so you probably check with a tax professional for guidance specific to your situation.

Answer 3

you should actually ensure this with a economic planner (which i'm no longer) because that is a significant determination, yet when i'm doing the mathematics wisely, right it truly is what I found out. in case you commence now and make investments the completed $500/month each and each month in a mutual fund or some thing like that which grows on trouble-free at 8% in retaining with year (after any taxes you should pay on distributions), in 12 years once you're sixty 5, that would have grown to about $one hundred and twenty,000. I calculated that utilising the "destiny fee of an annuity" function in my spreadsheet with price=$500, fee=.08/12 (the month-to-month improve fee), and time period = one hundred and forty four (the variety of months in 12 years). it really is a large headstart and a 6% go back (0.5% in retaining with month) on the $one hundred and twenty,000 you've saved may cover the $six hundred enormous difference between the funds from then on. Plus you nevertheless have the $120K that you saved. i imagine you come back out ahead no count how lengthy you stay for that reason. no matter if you make investments in some thing conservative like CDs or bonds and in common words get an after-tax go back of four%, you'll nevertheless have over $ninety 2,000 through the top of 12 years and (again if i have calculated wisely) it may take 18 years once you all started getting the $1100 assessments to make up that enormous difference. At that element, you'd be eighty 3. If it were me, and that i had those numbers validated to be particular they're nicely proper, i'd take the money now, make investments it in a extensive-marketplace mutual fund or ETF (like undercover agent or IWM) and watch it advance. The indexes those ETFs song have traditionally grown critically better than 8% a year that may positioned you even further ahead than the massive variety above instruct. you need to be particular you received't spend it although. in case you spend it, all this is going out the window and also you'll probable be extra perfect off waiting.

Answer 4

there's no way around paying the tax and 10% penalty on an early distribution unless you showed proof of using the funds for education, medical bills, or first time home purchase, etc.

Answer 5

You should of rolled it over when they made you take it, now it sounds like you have to pay the penalties. I'm going to be facing similar things here in a few months. I need some of my funds, and know I have to pay penalties, but the rest I'm rolling over. Good Luck

Answer 6

No way around it. You would have had to roll over the money into another pension or IRA within 30 days of the withdrawal.

You can't lessen the tax inpact of the early withdrawal itself - but you could do things to lessen your total tax burden - such as open and make a contribution to an IRA before April 15th.

However...if the issue is that you don't have the money, that won't wrok - since you need to contribute more money than you would save in taxes.

There are a few exeptions to the penalty - but usually it's noted on the form itself. If any of thse apply to you, you may be able to avoid the early-withdrawal penalty:

General exceptions. The tax does not apply to distributions that are:

*Made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary (if from a qualified retirement plan, the payments must begin after separation from service). See Substantially equal periodic payments, later,
*Made because you are totally and permanently disabled, or
*Made on or after the death of the plan participant or contract holder.

Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:

*From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees),
*From a qualified retirement plan (other than an IRA) to an alternate payee under a qualified domestic relations order,
*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,
*From an employer plan under a written election that provides a specific schedule for distribution of your entire interest if, as of March 1, 1986, you had separated from service and had begun receiving payments under the election,
*From an employee stock ownership plan for dividends on employer securities held by the plan,
*From a qualified retirement plan due to an IRS levy of the plan, or
*From elective deferral accounts under 401(k) or 403(b) plans, or similar arrangements, that are qualified reservist distributions.