Sunday

401k Withdrawal Without IRS Penalties

401K Withdrawal - How To Avoid An IRS Tax Debt
By Richard Close

Slump City: So, you're in debt and you can't pay it off. If you've got some money stashed away in a 401k, here's a few things you should know about that money.

No Taxes! When you put money into your 401k plan, you don't have to pay taxes; sounds good right? That's because income taxes must be paid on all withdrawals. The only way to avoid those taxes is if you rollover the money to another employer-sponsored plan or to an IRA. At age 59.5 you may tap into your account without a 10% early withdrawal penalty. If you leave a company and you are 55 or older, or disabled, you don't have to pay the 10% penalty.

Your Boss holds the Key! Most 401k plans only allow early withdrawal if it's for "financial hardship" purposes. Your employer determines his/her own definition of "hardship," which can be a good or a bad thing for you. Your employer may also use "safe harbor rules" which allow withdrawals for the following reasons:

1) To pay medical expenses

2) To cover down payment or to avoid eviction or foreclosure on primary residence

3) To pay college tuition

4) To cover funeral expenses for a family member.

Don't Forget, not all plans will let you borrow from your 401k. Plus, if they do let you withdrawal, you can only take 50% or less. So make sure you know your companies' 401k policies. Here are some of the rules and regulations for loans with your 401k program.

1) You must repay your loan within 5 years, unless you took out the loan to purchase your current residence.

2) The interest that you pay on your loan is subject to double taxation. That means that you pay the interest with after-tax money and it is subjected to taxes when you eventually withdraw it.

3) If/when you leave your company, you may have to pay back the outstanding balance in full. Otherwise, the outstanding amount will be subject to a possible 10% early withdrawal penalty.

4) If you default on your loan, the outstanding balance is also subject to a 10% early withdrawal penalty.

Fine Print: The most important thing is understanding the rules and regulations. If you follow them, you will never be caught off guard. Knowing the consequences can help you decide whether or not an early withdrawal is right for you. Depending on your situation, taking money out of your 401K may sound like the right idea, but it may put you in a worse spot than you were before.

Now you have the smoking gun...Use it!

Richard Close was an IRS-Hitman. He worked as a revenue officer for the IRS and his father was the head of the collections branch for 30 years; so it runs in the family. He left that behind and now he's partnered with Tax Defense Network to help thousands of Americans with their tax problems. He gives the tips and tricks for you to fight the IRS and win! Visit him at: http://irs-hitman.blogspot.com or http://www.taxdefensenetwork.com, or contact: email irs-hitman@taxdefensenetwork.com or 1-888-248-9058. Article Source: http://EzineArticles.com/?expert=Richard_Close http://EzineArticles.com/?401K-Withdrawal---How-To-Avoid-An-IRS-Tax-Debt&id=1190032

No comments:

Post a Comment