IRA withdrawal time? : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Did anyone wait until this year to get out of their ira so they wouldn't have to pay taxes and penalties until next year?

That was my plan until I was told that I would have to pay estimated tax on this money this year or pay additional penalties next year.

Is there any way around paying this estimated tax? What would you do?

-- bb (b@b.b), January 06, 1999


Put it in Certificates of Deposits.

-- flierdude (, January 06, 1999.

Regarding the answer to put it into C.D.'s-- could more clarification be given about that? How, exactly, will putting the proceeds of one's IRA/401(k)into C.D.'s to get around paying estimated tax on the amount?

-- Albert E. Potts (, January 07, 1999.

Albert E. Potts, bb;

>>Regarding the answer to put it into C.D.'s-- could more clarification be given about that? How, exactly, will putting the proceeds of one's IRA/401(k)into C.D.'s to get around paying estimated tax on the amount?<<

1. In order to defer, (for now, the taxes, NOT estimated taxes, the proceeds of the IRA must NOT be sent to you, but rather must be sent directly to an agent (some financial entity, bank, mutual fund, credit union etc.). This is called a roll over. You can set it up with a bank, or credit union to act as your agent and to put your IRA into their cd's.

Since this is an agent to agent transfer, and the money never passes through your hands there are no taxes due and no penalty is involved.

2. If, regardless of the reason for it, you take pocession of the money, or if the check is made out to you in your name as payee, the entity which currently holds your IRA MUST with hold 20% of the proceeds and send it to the IRS.

This is not optional, it is required. You will receive a check for the 80% (minus any state taxes that your state requires to be with held). You then in turn have 60 days in which to decide to keep the loot or chicken out and deposit it into another IRA.

However, should you decide to chicken out and deposit it into another IRA, you MUST deposit the full TOTAL amount of the cashed out IRA into the new account to avoid having a "partial withdrawal" and all penalties involved when you file your taxes.

This then means that you must pony up the amount(s) with held and paid as taxes even though you never had the money to start with.

3. If at the time that you take pocession of your IRA you are under the age of 59 1/2, and you are NOT disabled, you must pay an additional penalty of 10% when you file your income taxes for the year. This penalty is your responsibility to file/pay and is a part of your annual tax filing paperwork.

There are certain very specific reasons for which you can avoid paying the 10% penalty, which are the exceptions to the rules, but for the most part, if you handle the money you pay if you are under 59 1/2 years of age.

I just went through this little jewel myself. Fortunately(?) I am disabled and I turned 59 1/2 on the very day that I withdrew my 401k, so I escaped the 10% penalty. But, and trust me on this one, I sure as h*ll didn't escape the taxes. Oh boy, did I not escape them.

Oh yeah, I cashed out in 1998. Better to have missed this (so far) minor increase in value than to risk my family's future on a bet that the market would hang in there until now.

Good luck on yours.


-- sweetolebob (La) (, January 07, 1999.

Folks, a little common sense, please. Leave your long term and retirement investments alone. Keep paper records, but leave the investments right where they are.

-- No One You Know (, January 07, 1999.

A little common sense--gamble according to the stakes you're playing for instead of the odds that you'll win (or lose). . .

-- Hardliner (, January 07, 1999.

sweetolebob, are you saying that all the above rules for an IRA are identical for a 401k (e.g., 20% witheld for IRS)?

-- Jack (, January 07, 1999.


Mine was a 401k.

However, yes it is the same rules IF you take pocession of the money.

If you elect an agent to agent transfer you are then converting your 401k to an IRA, UNLESS you are transferring your 401k to the 401k plan of your present employer. In ANY other case, transfer to a bank, S&L, credit union, mutual fund etc, you are converting the 401k to an IRA.

Oh, one other little factor, FWIW: If you have withdrawn your 401k you get to INCOME AVERAGE your taxes over a 5 year period. This simply means that you spead the income out over a 5 year period of time (tax wise) and thus MAY save a little money on the taxes. If you were born before, I THINK, 1930 you get to use a 10 year average period.

This income averaging law expires in, are you ready for this one?, the year 2000.

If you are seriously thinking of pulling out your IRA/401k plan PLEASE get some good advice from a true financial adviser BEFORE you do it. I am very familiar with the ins & outs but I am NOT a certified adviser. In my case it made perfect sense for me to pull the plug y2k or no.

It may not be right for you since NO ONE knows what this Y2k Bitch Bear will do to us. This, like everything, is a judgement call on your part, and you will be the one who must live with the effects and all ramifications of your decisions.


-- sweetolebob (La) (, January 07, 1999.

Thanks, sweetolebob!

-- Jack (, January 08, 1999.

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