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Posted by a2mgoog on January 20, 2008, 1:20 am
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If anyone can help me with this, I would appreciate it.
I turn 55 this year, and I become eligible on my birthday to get a
lump sum retirement payment from my former employer. It will be
around $90K. I will take it now because I'm afraid if I wait until
I'm 59, they might change the rules, or stop paying altogether, as
some other companies have done.
I quit working several years ago with about $300K in my (regular)
IRA. With a little luck in the stock market, that's now around $500K,
divided among several accounts. No taxes yet, since it's an IRA. I
have been living on my savings, supplemented by withdrawals from my
IRA. I don't have to pay early withdrawal penalties because I'm
taking "substantially equal" annual amounts from a couple of the
smaller accounts, according to the minimum withdrawal formula in the
IRA pub (basically balance/life expectancy). I haven't had to file a
return because my IRA plus my savings interest comes to less than the
minimum income needed to file (now about $8K per year). Since I am
single, my house is paid off, and I live frugally, I can actually live
quite comfortably on about $10K/year.
Since I didn't owe any tax last year, I gather that there will be no
penalty for not filing estimated taxes if I take the $90K as income
this year. However, I also gather that I will be taxed at the top
rate, plus a penalty for taking the payment before age 59-1/2.
So, my questions:
1. Can I have this payment sent to an existing IRA account and avoid
taxes on it altogether?
2. Is there any way to take the payment as regular income, and income-
average over past or future years to lower my tax rate?
3. If I take this payment as regular income, and pay the 10% penalty
for early distribution, will it also trigger penalties in my existing
IRAs that I have been withdrawing money from?
4. I don't know much about Roth IRAs. Would there be a way to get
this into one without a big tax bite?
Thanks for any help, and especially for references to specific pages
of IRS publications.
--
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Posted by Phil Marti on January 20, 2008, 9:13 am
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> I turn 55 this year, and I become eligible on my birthday to get a
> lump sum retirement payment from my former employer. It will be
> around $90K.
> Since I didn't owe any tax last year, I gather that there will be no
> penalty for not filing estimated taxes if I take the $90K as income
> this year.
Correct.
> However, I also gather that I will be taxed at the top
> rate, plus a penalty for taking the payment before age 59-1/2.
Not quite. The gross amount would be added to your other income for the
year, and then tax computed as usual. It doesn't all get taxed at your
final marginal rate. There would be a $9,000 penalty on top of the income
tax.
> 1. Can I have this payment sent to an existing IRA account and avoid
> taxes on it altogether?
Yes.
> 2. Is there any way to take the payment as regular income, and income-
> average over past or future years to lower my tax rate?
No
> 3. If I take this payment as regular income, and pay the 10% penalty
> for early distribution, will it also trigger penalties in my existing
> IRAs that I have been withdrawing money from?
No. Remember, though, that you must continue the SEPPs for the required
time even though you may not now need the money.
> 4. I don't know much about Roth IRAs. Would there be a way to get
> this into one without a big tax bite?
The income tax bite would be the same, but you'd avoid the 10% penalty.
There's nothing that requires an all-or-nothing conversion, so you could
convert just a portion each year, pehaps enough to bring you to the top of
the 10% bracket.
Rollovers and lump-sum distributions are discussed in IRS Publications 575
and 590. Roth IRAs are in 590.
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by a2mgoog on January 21, 2008, 6:25 am
Please log in for more thread options >> 1. Can I have this payment sent to an existing IRA account and
>> avoid taxes on it altogether?
> Yes.
Thanks for your response. I think that's what I'll do. I looked
through 575 and 590, and it seems clear that a direct rollover to a
simple IRA means no taxes (this year) on the distribution. I can't
tell, though, whether I am required to file any forms. If everything
is between my ex-employer and my IRA trustee, do I need to file
anything?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Phil Marti on January 21, 2008, 9:48 am
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> Thanks for your response. I think that's what I'll do. I looked
> through 575 and 590, and it seems clear that a direct rollover to a
> simple IRA means no taxes (this year) on the distribution. I can't
> tell, though, whether I am required to file any forms. If everything
> is between my ex-employer and my IRA trustee, do I need to file
> anything?
Yes. You'll receive a 1099-R from the old plan. See the instructions for
line 16 of the 1040 for what you do.
--
Phil Marti
Clarksburg, MD
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by a2mgoog on January 21, 2008, 8:38 pm
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> Yes. You'll receive a 1099-R from the old plan. See the instructions for
> line 16 of the 1040 for what you do.
>
Thanks again.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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