I am 57. I want to withdraw 20,000. from my retirement . How much money do I need to set aside to pay IRS????

Question

I need 15,000. to pay off my debts. I think if I put 5,000. in the bank it will cover IRS for tax's and penilty. Am I correct??
Thank you

Answer 1

It depends on your other income.

If your final taxable income is in the 25% bracket, the federal taxes and penalty will be around 35% ($7000!!). If you're in the 15% bracket ,it will be 25% ($5000). Plus, if your state has an income tax, you would have to pay that also.

If you can wait until your 59 1/2, you can save the 10% penalty.

Answer 2

As others have said, if you have a traditional IRA, you will pay 10% penalty to the IRS plus the income tax on whichever bracket you fall into. With a 401k, you face the same situation, but the 401k plan may have some extra fees attached.

If you have a Roth IRA, you might be able to withdraw the principal at any time without penalty and income tax since you have already paid the tax on the money. The determining factor is the source of the funds.

All of that said, my advice would be to not short-circuit your retirement funds unless you are doing it as an absolute last resort to avoid bankruptcy.

Instead, get on a written budget and stick with it. If you really want to do it, you could pay off $15k in a couple years with payments less than $1000/month. If necessary, sell some stuff to help pay debt off. A part-time job is another option.

If your taxes and penalties run in the 40% range, that means you will have to withdraw $25k to pay $15k. Does it make sense to pay $10,000 extra to pay off $15,000? It doesn't to me.

Answer 3

Are you talking IRA or 401(k). They might not let you take it out of a 401(k) plan - you need a qualifying hardship reason - check with your HR dept or whoever administers the 401k plan at work it this is the case

since you're under 59 1/2 - you will have a 10% penalty come tax return time and the tax will be whatever tax bracket the additional income ($20000) pushes you into - I would guess about 25% - so you may need 35% for taxes would would gross up to 23,000 to get 15000 net

Answer 4

Usually you pay 10% to the holding company and 30% to the IRS, so you you should plan on 40%. Usually you pay 20% right away, and the other 20% at tax time.

You can have them hold out the whole $8000 now or you can pay the $4000 now and the other $4000 at tax time or you can just pay the initial 10% now. It is up to you when you pay it but you will owe $8000 if you take out $20,000.

Answer 5

At 57, you probably need to put aside close to half of any withdrawal for taxes, penalties & fees. Not very smart. At current rates, it would be cheaper to BORROW money for two and a half years so you no longer would have to pay penalties!

Goodness knows I rarely think debt is very smart, but you are so close to 59.5 it only makes sense to do the math!

Answer 6

well 2000 will go for penalties --- and if you are in the 15% tax line you should be close -- but instead of just giving uncle sam 5K i think i would leave the money in the 401 and reduce the amount being withdranwn from my check going into 401k.

if you have all ready done whe withdrawn from you pay check i would look over my budget and try to cut things out of my life i could live with out for 2 1/2 years -- cell phone internet dining out etc and use that to reduce my debt.

Answer 7

Early withdrawal from an IRA (traditional) is penalized 10%. On top of that you have to pay taxes on the amount at whatever income tax rate you are taxed at. See the links below for more information.

Answer 8

You would be better off to open a stock account if you're going to use the money to pay bills because you are really going to get raked over the coals.

Double taxes and a huge penalty.

Learn how to turn real estate over or how to trade stocks and then you can pay off your bills with the profits. I would never draw out that much money to pay off bills.

Answer 9

There may be a way to get around the 10% penalty. It's called SEPP and here's the info:

http://www.investopedia.com/articles/retirement/02/112602.asp

Answer 10

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