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Old 01-11-2010, 09:56 PM
 
144 posts, read 488,515 times
Reputation: 103

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My husband's job transferred him out of state. I was previously a state employee in MO. We are now in AR. After nearly a year in AR, I decided to cash in my retirement (minimal-3 years worth of investing-13000 total). I used it to pay off credit cards because I am not able to work in our new community due to licensing issues related to moving to a new state. Anyway, the 20% was held off the top, which I assume is standard. I am curious how this will affect our tax return this year. I keep reading that I will have to pay an extra 10 percent penalty because I was 28 when I decided to withdrawl. I assume I will, but when do I pay it? It isn't much (1300 bucks). Im just looking at some real estate and wondering if I am going to have much of a tax return, or if I need to wait until Spring for my husbands bonus from his employer.
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Old 01-12-2010, 03:35 PM
 
Location: Planet Eaarth
8,957 posts, read 17,009,429 times
Reputation: 7193
Cashing in any investment BEFORE the proper age will net you a big loss in taxes and take backs. The income generated from the cashing in of your account will be considered as income and will have to be declared as income on this years income tax. Yeah, I know that bites big time............

Strongly suggest that you use a tax service this year to walk you though the paper work to keep the bite to a minimum. This year isn't a DIY for taxes to be safe.
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Old 01-12-2010, 08:16 PM
 
144 posts, read 488,515 times
Reputation: 103
Im not worried about adding it to my income, because I am no longer working so my income was minimal anyway. Even adding it to the little bit I made, still puts me well under what I typical made each year. I already had the 20% pulled out. So the extra 10% penalty is all I should have left to pay. Is that correct? I don't know really anything about it. It was only 13000 in the first place. Other than the extra 10% and adding it to my income, Im not sure how else it affects my tax return? Any more information you can provide?
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Old 01-12-2010, 08:46 PM
 
Location: Planet Eaarth
8,957 posts, read 17,009,429 times
Reputation: 7193
Quote:
Originally Posted by melissajo View Post
Im not worried about adding it to my income, because I am no longer working so my income was minimal anyway. Even adding it to the little bit I made, still puts me well under what I typical made each year. I already had the 20% pulled out. So the extra 10% penalty is all I should have left to pay. Is that correct? I don't know really anything about it. It was only 13000 in the first place. Other than the extra 10% and adding it to my income, Im not sure how else it affects my tax return? Any more information you can provide?
allow me to repeat myself to answer your question..........
"Strongly suggest that you use a tax service this year to walk you though the paper work to keep the bite to a minimum. This year isn't a DIY for taxes to be safe."

also this piece of advice.....
No one is really anonymous on the net so it's not in your best interest to reveal so much of your personal info as you've done here. Keep it vague to protect yourself.
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Old 01-12-2010, 09:23 PM
 
Location: Conejo Valley, CA
12,476 posts, read 16,974,551 times
Reputation: 4304
Quote:
Originally Posted by Tightwad View Post
Strongly suggest that you use a tax service this year to walk you though the paper work to keep the bite to a minimum. This year isn't a DIY for taxes to be safe.
There is nothing particularly complicated here, its just standard stuff. There is no reason they can't file their own return.

To the OP, read tax topic 558:

Tax Topics - Topic 558 Tax on Early Distributions from Retirement Plans

If you still have questions after reading all the relevant information you can call the IRS and ask questions and it will cost you $0.
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Old 01-15-2010, 08:03 PM
 
144 posts, read 488,515 times
Reputation: 103
user_id,

Thanks for the link. I will look through it. It seems pretty basic to me, but I want to make sure there isn't something Im missing. Pay 20% initially, early withdrawal penalty of 10%. I've just never been in this position before (and probably won't be again) so it's not familiar. I tried googling, but it's hard to filter the good resources from the junk. I appreciate the help.
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Old 01-16-2010, 03:28 PM
 
Location: Prescott Valley,az summer/east valley Az winter
2,034 posts, read 3,531,027 times
Reputation: 7855
think you are missing something~ you will owe taxes on your $13000 ~ depending on you tax bracket that can be 31% to feds+ state taxes where you earned it~ then a 10% penalty for early withdrawal of money earmarked for retirement!

tax bite could be about 1/2 of the money!
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Old 01-16-2010, 03:33 PM
 
Location: Conejo Valley, CA
12,476 posts, read 16,974,551 times
Reputation: 4304
Quote:
Originally Posted by deckdoc View Post
think you are missing something~ you will owe taxes on your $13000 ~ depending on you tax bracket that can be 31% to feds+ state taxes where you earned it~ then a 10% penalty for early withdrawal of money earmarked for retirement!
They've said that they did not make much this year, so they should not have to pay much tax below the 10% penalty.
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Old 01-17-2010, 07:27 AM
 
Location: In America's Heartland
929 posts, read 1,824,393 times
Reputation: 1173
The tax hit for early withdrawal of an IRA or 401K is close to 40% for the avg. person. It is a terrible financial idea to ever do it. But, you are already there. It would have been much better to find a job, any job and attack your CC debt with the income. Of course, the best idea is not to go into CC debt to begin with.
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