Is it time to cash in IRA and pay 50% tax and 10% Penalty?

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stpaulmercantile's picture
stpaulmercantile
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Is it time to cash in IRA and pay 50% tax and 10% Penalty?

I'm sure I'm not the only one with this question.  I'd really appreciate some discussion on this practical subject. Are you guys holding on to your 401K's and IRA's, or are you cashing them in, paying the taxes and penalties, and using the cash to buy gold and implement your preparedness plans?

My wife and I have worked for almost 30 years and have a high percentage of our net worth in a 401k (her) and IRA (me).  It's currently mostly in money market accounts, with about 20% in precious metals and 10% in oil stocks that I bought back in August when I thought gasoline would go to $6 by the end of the year  (it went to $2). 

I'm considering cashing it all in and paying half in taxes and 10% in penalties.  The alternative is to wait about 10 years (I'm 57) and start withdrawing it without penalty, but 10 years is an eternity in these times, and the money could very well be worthless by then.  Plus, even if I were to wait, I'd still be paying 30-40% in taxes to withdraw it over time, so paying 50-60% now is only incurring about a 20% penalty.

I would pay off some short term debts, increase business inventory, and buy gold.  I'd also add a greenhouse on to my home and implement some other parts of my family preparedness plan that require capital investments. 

My wife and I are still employed, and since my self-owned business is in the family-preparedness market, sales should continue to be strong as long as there is any semblance of an economy left.

One other consideration - what about cashing it all in and delaying paying the taxes and penalties?  This would provide a heck of a lot more cash to buy gold.  Cashing in this month would not require paying taxes until 4/15/10, plus it would take the IRS many months to get serious about needing to collect the taxes from me.  The problem I see here is that if gold did not go up for some reason, I could end up being unable to pay the taxes and penalties, and that could result in personal bankruptcy and perhaps prison.  I could pay the taxes on time and still meet my personal goals, so my thinking at this time is that delaying the tax payments would result in my taking on more risk than I want to take.

One other question for the financial experts - I could pay off my mortgage, too, but that would mean not buying much gold.  Would it be wise to refinance my mortgage and HELOC (Home Owners Line of Credit) into a new 30-year 5% mortgage and pay that off with inflated dollars?

I look forward to your ideas.

 

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I wouldn't count on the USA, or at least the $ being around in ten years, so I'd cash out while it still meant something.  I cashed out my 401K 5 yrs ago and paid the 10% penalty, plus the income tax.  Never regretted it.  I'm only 37 and was 32 back then.  I never started an IRA because I thought it was a scam and an insult to property rights to begin with, but that's just me.

If I were 57, I'd definitely cash out of both, pay the penalty (I'd delay it in every legal way possible), and buy gold, property, or a commodity-based equity, such as an oil stock or an oil trust fund (like SJT, HGT).  Again, that's just me. As Chris says, we all have to evaluate our individual circumstances, trust ourselves, and take action.  

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ckessel
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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

stpaulmercantile,

You stated

"One other consideration - what about cashing it all in and delaying
paying the taxes and penalties?  This would provide a heck of a lot
more cash to buy gold.  Cashing in this month would not require paying
taxes until 4/15/10, plus it would take the IRS many months to get
serious about needing to collect the taxes from me. "

If you have a traditional IRA I think you will have the tax "confiscated" upon withdrawal. I think it is called a tax deposit that your account administrator is required to complete as part of the process.

That said, I'm in agreement with Pat on the cash out option. We have recently been in the process of closing out our 401K and IRAs and it is a painfully slow process. It feels good to have it done and to not have funds in an account that is under the control of the gov't. By that I mean that their actions can devalue what I have worked hard for and I suspect they could freeze the accounts if the going gets nasty........which it is bound to do.

Coop

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

BTW, I'm 58 1/2 and trying to hold on one more year!!

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

You can make withdrawals from any qualified retirement plan (401k or IRA) without 10% penalty beginning at age 59 1/2.  Not sure why you believe you need to wait 10 more years??  Actually, you can begin withdrawing without penalty from a 401(k) (not IRA) at age 55 if you are already retired.  Here is a good site that shows your options.

http://www.retireearlyhomepage.com/wdraw59.html

Good luck!

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

The good thing is you have time.  Govt confiscation of these assets is at least 18 months out.  There's no way to quantify the risk that it will actually happen, but having time is a good thing.  

If you do cash out, do not put the whole thing in gold at this time.  I still think it will experience a near-term correction probably below $700...then I'd buy big. 

A different type of recommendation...perhaps check with safewealthgroup to verify whether you can roll your 401k into a Swiss annuity (has to be at least $100k).  I believe you can.  This particular annuity product allows you to switch from currency to gold.  And Swiss annuities are completely protected from asset repatriation.  Swiss banks aren't, but annuities are.

 

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stpaulmercantile
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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Thanks for all the ideas.

I'll be 57 in July, so waiting until I'm 59 1/2 would be almost 3 years, and that's a long time in this economy.  Strabes, thanks for the tip about Swiss annuities - that might be an option.  And for the tip that gold might see another dip.

For those who don't know, there is a way to take cash out of your IRA, without penalty, regardless of your age, for any reason.  It is called Rule 72t, SEPP (substantially equal periodic payments).  I've been doing this for 3 years.  There is a formula that allows you to figure out a lifelong annuity amount, then you can remove that amount each year.  There are specific rules you must follow, and once you start, you have to do it every year for so many years minimum, but then you can take the cash out and pay the taxes, but not the penalty.  Just Google 72t SEPP for info.  This option may not be appropriate in our current economic environment, i.e., it may be preferable to just withdraw it all, but I wanted to mention it.

There is also a way, though I don't know the details, to set up an LLC and then use your IRA or 401K to invest in the LLC, thereby "loaning to yourself".  My brother did this, so I'll check out the details.  This would be the best way to go, as no taxes would be paid because the money would still be in the retirement vehicle.  As I write this, I realize that this would be the best option, so I'll look into it some more.  I think I recall an email from my brother saying the IRS was challenging this investment and he had some meetings scheduled ........

What have YOU done?

 

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

 

I worked in financial services for many years, and have been frustrated by the lack of skilled opinions, advisors and options for people who want to prepare for these things financially.  I've been working on putting together a 'tool kit' for regular people to address these investment needs.  I wonder if someone could eventually hang a shingle as an 'alternative outcome' financial planner?

I'll share some resources and thoughts I've found in my search for useful solutions:

1.  the 72T rule works great,  but it really only avoids the 10% penalty and the difference between a higher and lower income tax bracket because you withdraw less each year and spread it over time.  

2.  If you can offset your withdrawl with some sort of write-off, you can eliminate a lot of the income tax burden, which is the big one.   I can't tell if this is a good way to go or not, but when you buy into an oil and gas partnership you usually get to write off about 70% of the amount invested against your income under some antiquated tax law that allows it for 'exploration'.  In the case of natural gas in particular there is no exploration, they simply tap another hole next to an existing well.  But you are still allowed the deduction.  Downsides are:  peak gas is hard to predict-  you could own a piece of a well that runs dry, and liquidity is reduced.  Upsides are that you get a giant deduction (offsetting most of your IRA withdrawl) and ongoing depletion deductions, and the distributions on most of them is quite high and going higher-  14% or so from what I've seen.  

Atlas America had what seemed like a reasonable program:  http://www.atlasamerica.com/ 

3.  You can invest your IRA in all kinds of alternative investments including real estate, foreign real estate, rental property, and create promissory notes to fund the start up of a business or finance someone else's debt.  The custodian I believe is the best for this right now is Entrust.  The website is very informative and the fees are very reasonable.  Setting up an IRA to hold real estate only costs around $300.  I've dealt with the Minnesota branch and was very impressed.  You can use any branch (not just local ones) Check them out here: http://www.theentrustgroup.com/locations/franchises/11/

They have literature explaining IRS challenges which are usually related to the 'prohibited transaction' rule.  Don't be intimidated, it just takes some reading. 

 

4.  Learn to trade.  There are thousands of people doing this, but they are often humble, modest, and dedicated. I've been researching this program, and it comes highly recommended:  https://www.achieverschoicequest.com/aboutacq/tabid/146/Default.aspx

If you are sucessful at learning to trade, you can use your capital to provide an income stream to invest in the other things that will matter in the future (classes, property, hard assets, your community).  The returns most traders get will make up the difference in what gets lost in taxes pretty quickly.

5.  Explore alternative money managers who may be able to navigate and make money in a market that goes into a permanent decline.  Search for terms like 'absolute return' fund.  I found two resources I was really impressed with:

-Profitscore was able to bring hedgefund like strategies to smaller investors:  http://www.profitscore.com

I'm researching them now and they seem to be pretty good.

-Subjex corp makes a piece of sophisticated software that when applied to markets, is incredibly accurate at finding short term trends that can be traded.  This technology has been used by hedgefunds with great results.  They may allow smaller investors as well:  http://www.subjex.com/

I found them here:  http://hedgefundfaq.com

 

6.   Convert to a ROTH.  You pay the taxes anyway-  and if the gains are in the ROTH stay sheltered for a while- you're ahead,  if not you aren't really any farther behind.

 

7.  There are a couple companies I met that 'offshore' accounts.  This essentially means that your IRA statement is held in some kind of a trust that is held by a bank in the caribean.  You can still get your Schwab account delivered to your mailbox, but it is titled as your IRA of the so and so trust.  While this doesn't prevent anything from being forfeited or seized, and it isn't a way to avoid taxes,  it does make it legally complicated for someone else to get at.  You have to hire a lawyer on some small island to push the paperwork, which is backogged by years.  By the time it gets close to case time, you move it to another island bank.  This is the game the wealthy play when they are making assets hard to get in divorce or bankruptcy proceedings. 

 

I hope this is somewhat helpful to you as well as others.  I'll keep adding to my list in the coming months as I discover new ideas that might work in this environment. 

Where can I find more about the Swiss Annuity?   

 

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stpaulmercantile
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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Fortytwo, some GREAT ideas, thanks!  It's good to have someone with your background on the forums.

I think Entrust is what my brother used to get access to his IRA funds.  He formed an LLC that opened a restaurant and his IRA invested in the LLC.

The Entrust site said that one could invest IRA funds in gold and other precious metals.  Is ther a way to do this and actually take physical position of the gold?

 John

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...
fortytwo wrote:

Where can I find more about the Swiss Annuity?  

Can I get your email address to send a pdf?  I'd love your opinion on it.  They don't have a public website due to global compliance issues, and because it's not a mass market advisory service.

Email  [email protected]  for more info.

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I think (hope) you will have some time to cash-in your chips prior to any new legislation becoming effective.  They will want many people to cash-in to bolster tax revenues and to bring more money into circulation. 

As others have suggested, you are free to establish a self-directed IRA to buy hard assets like precious metals, real estate and other valuables.  You will need a custodial account - I use EntrustCAMA and have found them to be knowledgeable and service oriented and there are lots of other companies.

401-ks are trickier in that usually participants are limited to a short menu of investment vehicles that may not make sense in our collapsing economy.  Some plans allow loans to be taken with the interest payments going to the account holder.  Depending on the rules of your plan, you may be able to borrow a sizable portion of your vested amount.

Larry 

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DrKrbyLuv
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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

stpaulmercantile

I think Entrust is what my brother used to get access to his IRA
funds.  He formed an LLC that opened a restaurant and his IRA invested
in the LLC.

The Entrust site said that one could invest IRA funds in gold and
precious metals.  Is ther a way to do this and actually take
physical position of the gold?

Entrust is limited as to where you may buy gold - I think the only option provided is to buy through GoldMoney (James Turk) - and you are not allowed to take direct possession of the gold.  They use gold repositories in GB and Switzerland.

Depending on the amount of gold you are buying, you may not want to take possesion.  For example, if you hid a gold bar in your basement, and wanted to sell it, most likely it would have to be melted down to assure purity and weight.  Many people who own gold have some on hand (maybe gold coins for example) while they may store a greater bulk in a suitable repository.

Most IRA custodians will limit you to buy from one or more pre-approved sources.  If you have a preference as to where you want to buy and store your gold you may ask those people what custodians they deal with.

Larry

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I'm trying to do this exact thing (well my wife is) her company is proving to be a major barrier to achieving the result of getting OUR money out.

It really only highlights what Ive known all along, TPTB do not want you having control of the money.

I'd urge virtually everyone to take their money out of 401k type accounts ASAP.

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

My money is in a self-directed IRA.  My wife's 401k is with a large insurance company.  She quit working for them 6 years ago, but was then hired back on a contract basis and works from home.  They have some sort of pseudo-employee status that allows her to keep her 401k with the company, and they even continue to match a portion of her contributions.

The 401k has an option to move it into a self-directed account with Fidelity, at which point we can buy anything offered by Fidelity and not be limited in the number of trades we make.  Also, because she is no longer a real employee, we can roll the 401k into a self-directed IRA.

In either case, If I can buy hard assets with the funds, that allows me to buy 3 times the assets as I could if I withdrew the funds and paid the taxes and penalties.  The downside I see is that there is already talk in Congress of nationalizing IRA and 401k funds because "they really haven't worked that well for most Americans", and rolling the funds into the Social Security system, so you end up getting one bigger check from Social Security.

Anyone have thoughts on the liklihood of government confiscation of 401ks and IRA's?

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I don't think anything can be nationalized until/unless it tanks en masse.  There are already concerns that the natural selling of equities inside IRAs that will occur from baby boomers slowly liquidating to fund retirement will cause a permanent stock market decline,  and that's a fairly mainstream idea without applying the three E's.  If they suddenly nationalized it and withdrew all of that money from the market-  it would immediately tank the world markets.  Because there is such an obviously direct cause and effect, I doubt that would ever happen as long as we are still concerned with politics.

I would consider converting a portion of your IRA to a Roth, and consider using 72T on the other part to begin withdrawals.  I've also advised my parents to take social security as soon as possible, even at a lower amount.  This also goes for pensions.  Its better to get as much of the stream of payments as possible before it disappears.  Invest these withdrawals in the things that money won't buy in later years.

For the Roth and your wife's 401k,  I would either find a solid absolute return fund that will accept accounts the size that you have (many have high minimum balance requirements) or I would self direct and either commit to learning how to trade, or use a defensive strategy.  

One that I used this year for myself and my parents was to use Exchange Traded Funds (ETFs) which are similar to index mutual funds, except that they trade live during the day like a stock.  This means you can employ the use of 'stop' orders to sell you out of positions if/when they quickly and unexpectedly decline.

For example-  I bought the ETF for gold, (ticker = GLD) at around $65.  I placed a stop order at $61 incase the market dropped out on gold, I would keep my losses below 10%.  This is important because compounding works in the reverse just as strongly as in the positive.  As an example-  if you have a $100,000 acct that suffers a 50% loss,  a 50% positive return doesn't bring you back to where you started.  The 50% positive return is only earned on $50,000- which grows your account to $75k.  You need a 100% return to recover from a 50% loss!  Lesson-  stop losses before the become double digit losses-  at least you can recover from them in a reasonable amount of time.

As my GLD holding grew,  I would cancel my stop order, and move it upwards-  always keeping it approximately 7% below the market.  This way I would lock in my gains if it suddenly reversed.

The stop order works whether or not you are there to execute it.  It executes at the price you set it.  You aren't charged for a stop order, only the market order if and when it gets triggered by the stop. 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

here's my email-  I'd love to see the annuity document when you get a chance-

[email protected]

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

My wife wants to turn our big 100-year-old house into a B&B/office for my professional practice with a small part to live in.  (I know, I know: who's going to travel in this economy?  But I can't convince her to get rid of the big old house, which we clearly can't afford.) 

My wife and I already have an LLC that owns our small office building (really just another small house down the street that we use for a professional services office).  Could we somehow recharacterize our big house as a commercial entity (B&B/office/with a few rooms that we rent to ourselves to live in, put it under the LLC, cash in our IRA's, and redirect the IRA money to the LLC in order to pay off part of the mortgage and credit line?  Is this legally possible without paying a penalty or taxes?  By the way, the IRAs are under Scottrade.  Most of the IRA money is traditional, but a little bit of it is Roth.

Heck, if we also sell the office building, cash in our IRA's, and sell other assets, we could come close to paying off the mortgage on our house, which would make me feel a lot better.  Without that debt hanging over our heads, it would be easier to spend money on preparedness. 

So again, bottom line: likely to work in avoiding taxes and penalties, or not?

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

SPM - I cashed in my 401k and IRA in 2008 (for medical bills) and took the tax hits and penalties... yep, just about 50% gone, not to mention market value drop (but at least I get to claim the capital loss on my tax - big whoop). The remainder I've been putting toward my preparedness plans.

Yesterday, I looked at what my holdings would have been worth now if I'd held onto them... and I would have lost almost the same amount due to devaluation as I did paying taxes and penalties, and STILL had to pay taxes on them when I withdrew them. So, in hindsight, I made the right decision in my circumstances even though I was forced to do so because my insurance company is <insert vulgarity here>.

Given what I know now, I certainly wouldn't hesitate cashing out and taking the hit while you at least have some hope of offsetting the loss with continued earning, wealth protection strategies, and preparedness planning. I'm not putting any faith that the economy will magically stabilize. Leaving my earnings/savings floating around as electronic digits that may continue to devalue and ultimately become inaccessible as banks and brokerages start going under that's just a little more risky than I'm willing to tolerate at the moment.

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...
1440 minutes wrote:

My wife wants to turn our big 100-year-old house into a B&B/office for my professional practice with a small part to live in.  (I know, I know: who's going to travel in this economy?  But I can't convince her to get rid of the big old house, which we clearly can't afford.) 

My wife and I already have an LLC that owns our small office building (really just another small house down the street that we use for a professional services office).  Could we somehow recharacterize our big house as a commercial entity (B&B/office/with a few rooms that we rent to ourselves to live in, put it under the LLC, cash in our IRA's, and redirect the IRA money to the LLC in order to pay off part of the mortgage and credit line?  Is this legally possible without paying a penalty or taxes?  By the way, the IRAs are under Scottrade.  Most of the IRA money is traditional, but a little bit of it is Roth.

Heck, if we also sell the office building, cash in our IRA's, and sell other assets, we could come close to paying off the mortgage on our house, which would make me feel a lot better.  Without that debt hanging over our heads, it would be easier to spend money on preparedness. 

So again, bottom line: likely to work in avoiding taxes and penalties, or not?

Never mind.  I just remembered that I would lose tax advantages if I recharacterized my house as a business setting.  So I am no longer interested in doing this.

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Another way with Roth IRAs to avoid the 10% penalty for early withdrawal is if the first contribution you made was at least 5 years ago you can avoid the penalty even if you are not 59 1/2.  There is a separate wait period for traditional IRA to Roth IRA conversions.  Check the IRS rules, but that's my understanding.

Remember when Roths first came out, you could convert an existing IRA and spread the taxes over 4 years?  I did that several years ago and was glad to have all this money in my Roth well past the 5 year wait.   I was just reading the other night starting in 2010 the income limitation for converting IRA to Roths will be removed and you can pay the tax on the conversion in 2 parts in 2011 and 2012.  The catch though is tax rates may be higher then.

Each person should crunch the numbers for their particular situation, tax bracket, etc. to evaluate what options will be best.

 

 

 

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I am also 57 and have been unemployed for 2 years. My last freelance job was aug 2007. I cashed what was left in my IRA ($14,719) and paid a $75 fee. (1) When do I pay the 10% penalty? (2) I am confused about the 50% tax thing. Will I owe 50% of $14,719 if I have 0 income in 2009 as was the case in 2008?

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Hey Jobless and others reading this thread, be careful about what you read on the net, just because someone posted "50% tax" doesn't mean it's true.  I'm not a tax expert, I'm just someone who read the IRS rules so I could make my own financial plans and trust myself.  I've never paid anyone else or relied on software to prepare my tax returns.

Go to www.irs.gov and read up on IRA's and other areas.  See Publication 590 and tax Topic 451.  If you took a distribution (cash out) from your IRA in 2008 you will have to include that as income on your 2008 return (Form 1040) due April 15, 2009 and you will pay income tax on that income depending on your tax bracket.  In addition, since you weren't 59 1/2 yet you have to pay an additional 10% tax penalty which is figured on Form 5329. There are certain exceptions though, so read up to see if you can qualify for one to avoid the penalty.  Also, If taxes were withheld by your IRA custodian before you received the balance of the cash out, be sure to include those on your return as taxes already paid.

Bottom line, anyone who maks changes to their tax deferred retirement funds should think carefully about the tax implications well in advance. 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Hi Jobless,

I did cash out my 401k in 2008, and this is what happened:

  • Standard Income Taxes were withheld at the normal rate by the fund adminstrator at the time of the transaction, and received a check for the remainder.
  • I received a 1099 at the end of year from the fund showing my earnings and withholding from the transaction
  • When I filed my taxes, I had to claim that money as income, and (since I was younger than "eligible age") an additional penalty (about 10%) was calculated based on my adjusted gross income.
  • All total, between the income tax withheld at the time of transaction, and the calculated penalty on my tax return, I ended up with about 55% of the original 401k balance.

Your situation may be different since you have an IRA, are older, may have vested long enough not to incur penalty, your adjusted gross income, etc.  Any taxes and penalties that may be applicable should occur at the time of transaction, or when you file your return the year following the transaction (if you cash out in 2008, you file your 2008 taxes in 2009)

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

The two posts above are correct.  I was not intending to imply that everybody would pay 50% in taxes.  That was just an estimate of what I would have to pay.  I own/operate a small business, my wife is employed, so between self-employment taxes, federal and state taxes, I would be paying around 50% in tax for any cash I remove from my IRA, plus the 10% penalty.

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

stpaul, I apologize if it sounded like I was saying you were putting out wrong info, didn't mean that.

The taxes are a killer on your IRA if you don't have funds outside your IRA to pay them. 

 

 

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Re: Is it time to cash in IRA and pay 50% tax and 10% ...

stpaul, I apologize if it sounded like I was saying you were putting out wrong info, didn't mean that.

The taxes are a killer on your IRA if you don't have funds outside your IRA to pay them. 

 

 

stpaulmercantile's picture
stpaulmercantile
Status: Bronze Member (Offline)
Joined: Nov 19 2008
Posts: 87
Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Woodman,

No, I didn't think you were saying anything negative about me.  When I read your post, I realized that my choice of words for forum topic could have been interpreted to mean that IRA withdrawals are taxed at 50%, so I was just clarifying the title.

I hate to pay such a huge percentage in taxes, but the tax rates are going to get higher in future years, plus there is the talk in Congress of confiscating IRAs, 401ks and retirement funds and rolling them in with Social Security.  Also, the concern about high inflation in the not-too-distant future. 

JackG's picture
JackG
Status: Member (Offline)
Joined: Apr 10 2009
Posts: 4
Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I hope it's ok if I ask my question here since we are talking about 401k's. I'm considering moving to Berlin and was wondering if anybody could share some information about the 401k's in Germany because I couldn't find that much. Thank you very much in advance.

suesullivan's picture
suesullivan
Status: Gold Member (Offline)
Joined: Oct 6 2008
Posts: 305
Re: Is it time to cash in IRA and pay 50% tax and 10% ...

I'm 44 and Dh is 46. late last fall, I took out our Roth contributions. In Dec. I took out about $24k from my IRA. I was asked how much I wanted to withold and I elected 25 percent -- 10 percent for the penalty and 15 percent for our tax bracket. I roughed up what we probably earned last year and withdrew enough to take us approximately up to the next tax bracket. (I probably took out a bit too much, now that I'm looking at our tax numbers. That said, we're quite underemployed, have been for a decade, choosing to stay home and spend time with what is turning out to look like our best hope for retirement support, lol, our fabulous kids.)

I had to wrestle a bit with our tax software, but finally got it to recognize that the Roth withdrawals were contributions and tax free.

I took another $24k, paying 25 percent in withholding, out a month ago. I'm hesitant to pull out more and lose a higher percentage to taxes. At this point in time, I don't see an imminent threat to my IRA. I see a number of very likely long-term threats, so I will continue to pull out money as it makes sense to tax-wise, for now.

 One thing that is occuring to me as I read this thread, and I'm wondering if others have considered this, is the purchase of real estate. When I first looked into that option last fall, I rejected it pretty quickly because it's not possible under the law to manage or occupy the property yourself while it's in your IRA. But if you knew where you wanted to make your permaculture-food-forest-haven-of-last-resort, would you consider buying the raw land through an IRA vehicle and then just going in and contouring, planting and generally improving it. Heck, for that matter, building your earthship and living on it! Who's going to complain that you're squatting on your own property, after all?

eta: I suppose the flaw in the plan might be how the real estate gets disbursed out of the IRA once you reach retirement age. Does it have to be sold to an outside party to be redeemed? Would you be required to pay taxes in one year on the entire value of it if you took official possesion? I should look this up....

 

jerrydon10's picture
jerrydon10
Status: Gold Member (Offline)
Joined: Mar 2 2009
Posts: 442
Re: Is it time to cash in IRA and pay 50% tax and 10% ...

Sue,

Regulations allow you to place qualified assets (retirement accounts) into real estate (seems you already knew this).

Although I don't advise it, I've ran across many of them placed entirely in real estate or RETs (Real Estate Investment Trusts).

However, you cannot invest your own qualified money into real estate in which you directly benefit from it. An example would be placing your IRA into a condo, then renting that condo out to yourself. That is called self dealing and is an absolute no no.

As for disbursment: At the age of 70 and 1/2 you will have to start taking RMDs (Required Withdrawals) as the IRS figures if you aren't retired at that age, they will help you retire.

These RMDs normally start at around 4% per year. How do you start doing this with a total real estate investment without selling it and therefore defeating your very reason for investing in it? Bad idea. Wink

 

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 601
So do we ever? It's a hard hit.

So do we ever? It's a hard hit. We just did 3% more this year. That makes 9%. 

How will we know when?

Will the alarm be sounded on CM fast enough to get it into PMs?

I figure I can get it out and ordered in four days if I can get my bank to do the wire transfer.

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