My boss recently retired, I went to work elsewhere and he called me to tell me I would be getting the money from my retirement plan since he was cashing it all out. Since I dont have an IRA what percent approximately should I hang on to for taxes at the end of the year.
2007-04-26 07:34:03 · 4 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Your best bet would be to open a rollover IRA and put the money in - then you won't have to pay anything. If you take the money out, you'll pay a penalty of 10% of the total, plus income taxes as ordinary income (the same amount as if you made that much extra from a job).
2007-04-26 15:52:58 · answer #1 · answered by Judy 7 · 0⤊ 0⤋
The distribution will be taxed at your marginal rate as ordinary income plus a 10% penalty tax. The distribution will be paid to you after withholding of 20%. You'll need to check your other income to see if that will be enough. Unsually it is not.
Better idea. Open an IRA right now and roll the retirement over into it. If you roll over into a Roth IRA, you WILL have to pay the tax on the roll over amount but not the 10% penalty tax. If you roll over into a traditional IRA, there will be no tax due.
Just open the IRA and tell them that you want to do a rollover from a retirement account at an old job. They'll handle it all for you and you won't even touch the money or have to worry about taxes.
2007-04-26 15:55:15 · answer #2 · answered by Bostonian In MO 7 · 4⤊ 0⤋
My advice is open an IRA. If you do keep the cash, don't wait for the end of the year. Set aside money immediately and make and estimated payment at the end of the quarter. Another option is to increase your withholding to cover the taxes. The IRS withholding calculator linked below should help. List the payout as "Other Earned Income". That won't account for the 10% early withdraw penalty, but it should get you close. You can always divide the penalty by the number of paychecks remaining and request you current employer withhold that amount extra from each check. Just remember to readjust your W-4 in January.
2007-04-26 20:40:55 · answer #3 · answered by STEVEN F 7 · 0⤊ 0⤋
I'm not positive on the amounts, but one thing you can consider is rolling it over to another IRA. Roth IRAs are one option.
2007-04-26 14:41:33 · answer #4 · answered by Bren 3 · 1⤊ 1⤋