I owe IRS money?

Question

I dont have a job because I became disabled.I do have money in a 401k and am wondering if they will allow me to take moeny out to pay them without having to pay tax on that money as income?

Answer 1

This is from IRS publication 17: Your Individual Income Tax. This is about Trad. IRA. Should also apply to 401K.

“Early Withdrawal is subject to 10% penalty. Also the withdrawal will be taxed at your normal income tax rate. However, in some case there is no penalty on early withdrawals.
*If distributions are not more than your qualified higher education expenses
*You have unreimbursed medical expenses that are more than 7.5% of your adjusted gross income. The distributions are not more than the cost of your medical insurance.
*You are disabled.
*You are the beneficiary of a deceased IRA owner.
*You use the distributions to buy, build, or rebuild a first home.
*The distribution is due to an IRS levy of the qualified plan.

You became disabled, does qualify for early withdrawal without penalty.

Answer 2

Nope. Owing the IRS money does not qualify as a "hardship", so your distribution would get a penalty and a tax.

Call the IRS and talk to them. Tell them your monthly income and expenses and try to get set up on a payment plan. If you are really hard up they may right off the debt as uncollectible.

In the meantime, if your SSDI checks are deposited into a bank account, stop them using direct deposit. While you are "negotiating" with the IRS they can (and usually do) file liens/levies against your assets and they will attach your bank account and take all your cash. So keep minimal amounts of cash in the bank and use money orders to pay your bills.

Anyway, call the IRS immediately, the longer you wait to tell them about your circumstances the more you will owe.

Answer 3

First, call the 1-800 number for the IRS facility in your area. You can do a Google or a Yahoo to get the IRS website. IF you owe money, get onto a payment plan whereby you have to pay so much per month. However, you will have to call the IRS to set up payment arrangements, and they will ask you how much you can afford to pay per month to satisfy the tax bill, PLUS penalties and interest (which are tax deductable, BTW).

Liquidating a 401 K will cause a 20 percent tax hit MINIMUM. Just check with the IRS first...before cashing in your 401 K. And, IF it is getting too hairy for you; get a lawyer to help out.

Answer 4

You'll have to pay income tax on money you withdraw, since no tax was paid when you put it in. If you are disabled you might be able to avoid the 10% additional tax as a penalty for withdrawing money before age 59-1/2, but you still have to pay the income tax.

Answer 5

Sorry, but you take the money out of your 401K and that becomes a taxable distribution, and to make matters worse, if you are under 59 1/2 there's an additional 10% penalty that you must pay unless you meet certain exceptions.

Answer 6

Since you are disabled you can withdraw the funds without penalty. The withdrawal is taxed as ordinary income, however. There is no way around that.