Anyone taking the 10% penalty and cashing out 401k or IRA?

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Travlin's picture
Travlin
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

jpitre wrote:

I am personally of the opinion that we are better off opting out of any program (including self directed IRAs ) because any of these programs pull us into the control web that keeps us so neatly kept under their (and Wall Street/Bank) thumb. Every time I even think about participating in some government program, I find myself deluged with paperwork and restrictions that I will not live with. The idea that anything from Big Brother that has any financial spin to it will somehow make my life better is an illusion.

Jim

jpitre

I agree that non-IRA money is easier and more flexible.  But some of us already have sizable sums and a large proportion of our assets in an IRA.

A Self-directed IRA allows you to hold gold and sell it without the 28% tax bite.  You can buy a much better retreat with your real estate purchase through a Self-directed IRA If you avoid the 30%-40% tax and penalties of early withdrawal from cashing in your standard IRA.

I'm not saying that a Self-directed IRA is a good thing for everyone, but it is worth investigating so you can make the best decison for your circumstances.

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MarkM
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

Coorect me if I am wrong, but it is my understanding that assets within a self-directed IRA may not be personally utilized. such as a country retreat. You may argue that you are there in a managerial capacity or something of that nature.  I looked at that myself and decided that I didn't want to take any chances that Uncle Sugar could figure a way to dramatically affect my plans.  It might also be complicated when mandatory disbursements begin.

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Ken C
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

MarkM wrote:

Coorect me if I am wrong, but it is my understanding that assets within a self-directed IRA may not be personally utilized. such as a country retreat. You may argue that you are there in a managerial capacity or something of that nature.  I looked at that myself and decided that I didn't want to take any chances that Uncle Sugar could figure a way to dramatically affect my plans.  It might also be complicated when mandatory disbursements begin.

That is correct. You can buy land or property but you cannot directly use it until you take distribution and pay taxes on the distribution. I looked at doing that also but decided that I would just bite the bullet and take the distribution.

I suppose that you might buy some land in your IRA that you found a great deal on and just keep it until you are ready to retire and take the distribution and tax hit but that seems like a really difficult proposition with all of the unknowns.

Ken

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Travlin
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

Ken C wrote:

MarkM wrote:

Coorect me if I am wrong, but it is my understanding that assets within a self-directed IRA may not be personally utilized. such as a country retreat. You may argue that you are there in a managerial capacity or something of that nature.  I looked at that myself and decided that I didn't want to take any chances that Uncle Sugar could figure a way to dramatically affect my plans.  It might also be complicated when mandatory disbursements begin.

That is correct. You can buy land or property but you cannot directly use it until you take distribution and pay taxes on the distribution. I looked at doing that also but decided that I would just bite the bullet and take the distribution.

I suppose that you might buy some land in your IRA that you found a great deal on and just keep it until you are ready to retire and take the distribution and tax hit but that seems like a really difficult proposition with all of the unknowns.

Ken

MarkM & KenC

Thanks for the information.  I haven’t gotten that far in my research on a self-directed IRA so my example of buying a retreat seems incorrect.  Could you buy productive farmland and rent it to a local farmer for income from a secure asset?  To make a living most farmers now need to plant more land than they afford to buy.

For some people paying the tax and penalty is a the right choice.  I’m just saying check out all the options.  If you can find a way to avoid the penalties that works for you, then you will have a lot more money to use for preparations.

Wendy S. Delmater's picture
Wendy S. Delmater
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

I took a 32% hit but cashed in about two-thirds of my self-directed IRA anyhow. It broke down to 10% penalty, 7% state tax, and 15% federal. We used it to get a well, put a huge Square foot garden, an airtight woodstove, storage space in our attic, a solar-powered attic fan, and many more projects. Should we have an emergency we can heat, cool and defend our home. We'll have water, and we can eat. We have PMs as an investment. And if we are wrong the worst thing that could happen is that our untility bills are MUCH lower and we are eating healthierwith home-grown food  andgetting exercise as we garden.

Good deal.

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MarkM
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

Travlin wrote:

Could you buy productive farmland and rent it to a local farmer for income from a secure asset?  To make a living most farmers now need to plant more land than they afford to buy.

It is my understanding that you could do just that.  I even gave some thought to personally buying a small tract for a house within a larger tract that would be a productive asset held by the self-directed IRA.  In the end, that just seemed to have to many potential problems.

You are absolutely right that all angles should be examined and that the "right" answer is not the same for everyone.

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Big Baby
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

Finally did it, cashed out our Traditional IRAs.  Still have 30K or so in my individual 401K, but have the paper work to close it and take my distribution.   

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Ken C
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Re: Anyone taking the 10% penalty and cashing out 401k or ...

Travlin wrote:

Thanks for the information.  I haven’t gotten that far in my research on a self-directed IRA so my example of buying a retreat seems incorrect.  Could you buy productive farmland and rent it to a local farmer for income from a secure asset?  To make a living most farmers now need to plant more land than they afford to buy.

For some people paying the tax and penalty is a the right choice.  I’m just saying check out all the options.  If you can find a way to avoid the penalties that works for you, then you will have a lot more money to use for preparations.

Yes, you could do that. The thing to remember is that all income from the property goes into your IRA account and all expenses for the property comes out of the account. Also, you cannot rent it to yourself or family.

It just seemed to be too hard to control something like that. ( at least for me)

Ken

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susies75
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Inherited IRA

Can anyone give me advice as to how I can get an inherited IRA penalty/tax free (or as close to it as possible)?

We would be using the money to expand our house because our family has outgrown our current home. I have read you can use up to $10K towards buying a new home, but would that include expansion in any way? 

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fandango
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Posts: 52
Inherited IRA

There are several exceptions to the age 59½ rule. Even if you receive a distribution before you are age 59½, you may not have to pay the 10% additional tax if you are in one of the following situations:  You are the beneficiary of a deceased IRA owner

http://www.irs.gov/publications/p590/ch01.html#en_US_2010_publink1000230896

Had to deal with this last year....IRS calls it a Non-spousal inheritance (since you mentioned your family, I am taking a guess that the IRA was inherited from a relative).

Not sure on the house situation. 

dale14's picture
dale14
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401k default

I will be losing my job shortly after the 1st of the year due to a non work related injury. My 401k market value is currently $145000 with $8000 of that vested roth 401k. I have a $28500 outstanding 401k loan that i will not be able to pay off. The vested balance of my 401k is $115000.  It looks like i am going to have to apply for social security disability and unfortunatly because of the length of time it takes to be approved and my need for cash to pay bills i will have to default on my 401k. Can anyone tell me after the dust settles what i will end up with?

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Wendy S. Delmater
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Dale 14. If you mean

If you mean what will happen if "default on your 401K loan," that will depend on the taxes in your state added to the taxes on your Federal part of the default. I did not default on a loan from my 401K, though. In my case I paid a total of 37% to cash out my IRA which is what I rolled over my 401K into. And I did not cash it out all at once to keep from pushing our income into a higher tax bracket for a particular year, or it would have been higher.

You're going to take a massive tax hit unless you can show a hardship, which it looks like you can. There is a hardship exemption on some portion of your withdrawal, or there was. You need an accountant to show you how much you can take out at once. You can pay him out of the money you will be withdrawing.

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concerned1992abc
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withdrawing from 401k

I inherited my dads 401k plan and was told I had to withdraw from the account or rollover in 5 years. I am 24 and live in michigan but I am going through hardships finding work and have no current address or means to make a living. Do I qualify for 10% fed tax hardship or no? And what are the pros/cons of that option. Please help. Thanks

Spud's picture
Spud
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Joined: Nov 16 2015
Posts: 1
Well my story is that my

Well my story is that my employer has a retirement plan with Trans America. Options to invest in are few. I've lost $20K in the last 2 months. I called them and found out I can't take the $ out unless I'm 59.5 (I'm not) or I quit (can't do that). They advised me to put it all in New York life insurance co gauranteed interest  Acct. to get out of the market completely. That's where they say I'm the safest during this turbulent time. So I did. But is that really the best thing to do? I don't like it to be all in one place and in that type of fund too. It only earns 2.06%. But what other option does someone in my situation have. I guess it's time to talk to a professional. Any advice?

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Zechariah_J
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Joined: Feb 12 2016
Posts: 4
I told mine out last year and

I told mine out last year and I'm glad I did. I cant have someone to tell me what I can do or not do with my money.

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