48 years old in Michigan. Took a lump-sum distribution of 40(k). Am I able to avoid paying income taxes if I make contributions to family members of $10,000 before April 15? Or can I accomplish the same if I contribute to Roth IRA or Roth 401(k).
2007-04-01 04:02:22 · 2 answers · asked by Mary B N 1 in Business & Finance ➔ Personal Finance
Gifts made to family members do not qualify for exclusion from a 401K distribution taxation.
Unless you roll it over within the 60 day-time limit to a rollover IRA plan (not Roth) , you will be subject to income tax AND the 10% penalty on the distribution, barring any of the penalty exclusions.
Also, if there was the mandatory 20 % Federal withholdings on the distribution, for you to roll it over tax free you will need to "out of pocket" the 20 %. Say, the distribution was $40,000 and you received $32,000---then to qualify for a tax free roll over, you would have to contribute $40,000.
2007-04-01 05:06:04 · answer #1 · answered by beached42 4 · 0⤊ 0⤋
If you roll it into a Roth, you'll still have to pay taxes; however, you will never have to pay taxes once you start withdrawing from it when you retire. Why not consider a traditional IRA? You won't have to pay taxes now; however, when you make withdrawals, you'll be taxed on that income. The best advice: You need to contact a reputable Financial Planner or Certified Public Accountant to know what is exactly right for you in your particular circumstances. This is a big decision, so it's not time for us amateurs on Yahoo... it's time to talk to the professionals who do it for a living (and for a fee).
2007-04-01 11:20:42 · answer #2 · answered by Mike S 7 · 0⤊ 0⤋