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Post by Zee on Oct 20, 2016 20:29:43 GMT
I have a small retirement fund from an old job. It's nothing to retire on, and only holds about $14k. I also have another that holds about $4k I think. I'm wanting to know if anyone has cashed those types of things in early. I'm trying to do online research to see what kind of penalties I may have to pay, since I'm not retiring. I want the cash on hand to help with medical bills (recent cancer diagnosis) and because I'll be unable to work for a while. I know there will be taxes to pay. Is anyone familiar with the process? Don't worry, I'll do more extensive research when I have a bit more time, but I was hoping someone here might have a little guidance. Thanks in advance for any advice anyone can offer! And fair warning, I'm really uneducated when it comes to financial matters, because it bores me and involves numbers, but I'm willing to learn!  |
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Post by stampinbetsy on Oct 20, 2016 20:33:39 GMT
I'm not an expert by any means, but I do know that you will pay something like a 20% penalty in taxes for early withdrawal. The company may or may not take the taxes out when they send you the check.
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pudgygroundhog
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Location: The Grand Canyon
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Post by pudgygroundhog on Oct 20, 2016 20:42:50 GMT
Are they 401K accounts?
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Post by annabella on Oct 20, 2016 20:44:25 GMT
I believe there's no penalty if you use it to purchase a home or pay medical bills. I would call the company up that holds the money and ask them what's the process to verify what you're doing with the money.
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Post by annabella on Oct 20, 2016 20:46:22 GMT
I googled and found this:
But to discourage these early hardship withdrawals, in most all cases the IRS imposes a hefty financial penalty including a 10 percent early withdrawal penalty if you are younger than 59 1/2.
You may qualify to take a penalty-free withdrawal if you meet one of the following exceptions:
You become totally disabled.
You are in debt for medical expenses that exceed 7.5 percent of your adjusted gross income.
You are required by court order to give the money to your divorced spouse, a child, or a dependent.
You are separated from service (through permanent layoff, termination, quitting or taking early retirement) in the year you turn 55, or later.
You are separated from service and you have set-up a payment schedule to withdraw money in substantially equal amounts over the course of your life expectancy. (Once you begin taking this kind of distribution you are required to continue for five years or until you reach age 59 1/2, whichever is longer.)
Employers are not required to offer any type of hardship withdrawal, so you should check with your employer to see if it is available to you.
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Deleted
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Jun 13, 2024 10:35:35 GMT
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Post by Deleted on Oct 20, 2016 20:59:09 GMT
Some of the advice above is incorrect.
It can depend on where you are withdrawing from. IRAs have differnet rules than 401k's and 401k's each have their own plan document which specifies what type of withdrawals you can make. You need to ask for an SPD if it is a 401k and you are still employed. Generally if you are terminated, you can take a 100% withdrawal, but sometimes it is limited to certain times each year.
It can also depend on the reason why and your age. Hardship withdrawals can still get hit with a 10% early withdrawal penalty plus 20% is usually withheld for income tax. You might get some of that back at tax time.
I honestly never suggest using retirement money for current bills because of the taxes and penalties. I also never suggest taking a loan against your retirement plan, because it can become immediately fully taxable if you fail to make payments or at termination of employment if you can't pay the whole thing back.
So if you give more details, you might get better answers!
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Post by Zee on Oct 20, 2016 21:42:49 GMT
It was a 403b, the main one. The other was TIAA/Cref and I don't even know what that was, I only worked there a very short time 12 years ago. I just left it sitting there to see how much it would grow over the years.  |
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Post by Zee on Oct 20, 2016 21:46:34 GMT
Thank you @luvspaper. I'd provide more details if I even knew what the details were. LOL.
I'm going to call the number provided on my statement and see what they say. I have never bothered with that account before because I just wanted to let it grow on its own, but it's actually lost $500 in the past six months. I am not going to retire with that money so I don't much mind paying a penalty for the peace of mind of having some cash on hand now.
I don't NEED it right now, so maybe I will just leave it alone as is, but I'm getting antsy about the bills that keep coming and not being able to work for a while.
I just wanted to see if anyone else had done this and what types of penalties I might expect. Thank you!
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Deleted
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Jun 13, 2024 10:35:35 GMT
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Post by Deleted on Oct 20, 2016 21:58:16 GMT
403(b)'s, which are kind of like 401k's, can have different rules also (and generally that is what TIAA CREF handles vs 401k's). Definitely call the number on the statement and ask for an SPD. Just realize they can't give you tax advice over the phone but should have some type of document they can send you regarding the taxability of any distribution. Usually it would come with any distribution form that you would fill out to actually take the distribution.
You might be able to roll over the amount to an IRA and take portions as needed rather than all at once. Many times 403b's and 401k's require that you take 100% if you are taking anything (they don't do partial withdrawals, especially after termination). But I am not 100% sure that 403b's can be rolled into an IRA.
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Rhondito
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MississipPea
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Post by Rhondito on Oct 20, 2016 22:02:04 GMT
I believe there's no penalty if you use it to purchase a home or pay medical bills. I would call the company up that holds the money and ask them what's the process to verify what you're doing with the money. Not true - at least for purchasing a home. |
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Post by Darcy Collins on Oct 20, 2016 22:15:20 GMT
Be extremely careful about doing anything this year. Taking a lump sum at the end of this tax year when you've worked all year in the anticipation of not working next year (or working less) can have huge tax implications even beyond the penalties associated with early withdrawal of a retirement account.
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Post by cadoodlebug on Oct 20, 2016 22:38:29 GMT
Be extremely careful about doing anything this year. Taking a lump sum at the end of this tax year when you've worked all year in the anticipation of not working next year (or working less) can have huge tax implications even beyond the penalties associated with early withdrawal of a retirement account.  |
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Post by Zee on Oct 20, 2016 23:22:55 GMT
Be extremely careful about doing anything this year. Taking a lump sum at the end of this tax year when you've worked all year in the anticipation of not working next year (or working less) can have huge tax implications even beyond the penalties associated with early withdrawal of a retirement account. Can you elaborate (without laughing at me!)? I only work about 10-20 hours a week right now. That's been the case for the last year and a half. Aside from paying taxes on the lump sum now, what implications are there for next year? I won't be off work for more than two months, hopefully, and the money I make is generally just for paying medical bills or my school or whatever. |
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Deleted
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Jun 13, 2024 10:35:35 GMT
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Post by Deleted on Oct 21, 2016 0:09:30 GMT
You might be in a lower tax bracket next year if you work less than you did this year. you want to try to schedule a distribution in years where your taxable income is lower.
If you know your income for 2017 is going to be lower than 2016 then you would want to take the distribution in 2017. Because your distribution income adds into the rest of your income at in that put you in your tax bracket. For some people it could put you in the next tax bracket up.
Retirement planning takes into account the fact that your income will generally be lower as will your tax bracket when you actually retire.
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Post by Darcy Collins on Oct 21, 2016 0:16:24 GMT
Be extremely careful about doing anything this year. Taking a lump sum at the end of this tax year when you've worked all year in the anticipation of not working next year (or working less) can have huge tax implications even beyond the penalties associated with early withdrawal of a retirement account. Can you elaborate (without laughing at me!)? I only work about 10-20 hours a week right now. That's been the case for the last year and a half. Aside from paying taxes on the lump sum now, what implications are there for next year? I won't be off work for more than two months, hopefully, and the money I make is generally just for paying medical bills or my school or whatever. I'm on my phone, so can't write too much. There's the higher bracket issue the previous poster mentioned, but there are also a ton of deductions and credits that are income dependent - depending on your total income (if you have a spouse) and your specific situation - dependants, which credits you claim, you need to be sure it doesn't throw you over as it will all exacerbate the already hefty penalty. |
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Deleted
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Jun 13, 2024 10:35:35 GMT
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Post by Deleted on Oct 21, 2016 0:28:57 GMT
403(b)'s, which are kind of like 401k's, can have different rules also (and generally that is what TIAA CREF handles vs 401k's). Definitely call the number on the statement and ask for an SPD. Just realize they can't give you tax advice over the phone but should have some type of document they can send you regarding the taxability of any distribution. Usually it would come with any distribution form that you would fill out to actually take the distribution. You might be able to roll over the amount to an IRA and take portions as needed rather than all at once. Many times 403b's and 401k's require that you take 100% if you are taking anything (they don't do partial withdrawals, especially after termination). But I am not 100% sure that 403b's can be rolled into an IRA. I rolled a 403b |
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Post by Zee on Oct 21, 2016 0:55:11 GMT
You might be in a lower tax bracket next year if you work less than you did this year. you want to try to schedule a distribution in years where your taxable income is lower. If you know your income for 2017 is going to be lower than 2016 then you would want to take the distribution in 2017. Because your distribution income adds into the rest of your income at in that put you in your tax bracket. For some people it could put you in the next tax bracket up. Retirement planning takes into account the fact that your income will generally be lower as will your tax bracket when you actually retire. Ah, thank you! It won't make any appreciable difference in our income, the tax bracket will remain the same. |
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Post by Zee on Oct 21, 2016 0:57:40 GMT
Can you elaborate (without laughing at me!)? I only work about 10-20 hours a week right now. That's been the case for the last year and a half. Aside from paying taxes on the lump sum now, what implications are there for next year? I won't be off work for more than two months, hopefully, and the money I make is generally just for paying medical bills or my school or whatever. I'm on my phone, so can't write too much. There's the higher bracket issue the previous poster mentioned, but there are also a ton of deductions and credits that are income dependent - depending on your total income (if you have a spouse) and your specific situation - dependants, which credits you claim, you need to be sure it doesn't throw you over as it will all exacerbate the already hefty penalty. Thank you very much, it won't make any appreciable difference I don't think. According to my husband, who does the taxes. I appreciate your input! |
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