As tax law is very complicated, this article is intended only for educational or illustrative purposes and should not be construed to communicate legal or professional advise. You should contact us with any specific questions so we can properly interpret how the tax laws applies to your situation. Killingbeck Tax Preparation, Kokomo, Indiana. 765-452-8000.
Each year, we see many of our tax clients getting burned (end up owing big time on their taxes) because of the timing of withdrawals from 401K or retirement accounts. Here's some advice to help you avoid getting burned.
To Avoid Penalties & Higher Taxes You Have to be Real Careful on When and How You Take Retirement Money.
1. Early Withdrawal Penalties and Taxes:
Taking money out of a 401K or other retirement accounts before 59 1/2 usually has several serious disadvantages:
- a 10% penalty to 25% penalty (Simple Plan),
- can put you in a much higher tax bracket (28 or 33% Federal and 5% State),
- can cause withholding underpayment penalties,
- and results in you paying 30% to 52% of your retirement money to taxes!
If you must take money out early from 401K or other retirement account (try to avoid if you can), we encourage you to contact us before doing it to help you plan the best approach to help avoid big penalties (and cause you to owe big time).
We can look at the tax brackets and help you get the proper withholding from your 401K or retirement account. It may even be best to take the withdrawal over 2 years to save a lot of taxes. We can help advise you. 765-452-8000.
2. Regular Retirement Withdrawals and DOUBLE TAXATION.
You also have to watch when taking new retirement money or 401K after you retire to avoid penalties & high taxes.
Not only can higher tax brackets and underpayment penalties be a problem but you my be subject to double taxation caused by the tax on your social security.
Again, get with us before you take money from your retirement account or 401K so we can help you plan how best to avoid big problems. 765-452-8000
Please remember anytime you have questions or need advice, we are here to help!
Give us a call if you have questions or we can be of help, 765-452-8000. Killingbeck Insurance & Tax Preparation, Kokomo, Indiana.