Comments on: What is the best way to handle retirement funds?

By: JQT

JQT — Sat, 08 Nov 2008 11:41:13 +0000

I don’t know where he came up with the 45% - unless he is still working, his marginal tax rate is at the highest bracket AND he has not reach his retirement age yet. Then my question is why does he want to touch that money?

If he wait until after retirement age, then the distribution presumably will be taxed at a lower rate (because he no longer has a job and thus lower tax bracket). And no 10% early distribution penalty.

If the size of his retirement funds is substantial, then he should start withdrawing as he reach his retirement age. Otherwise once he reaches 70 1/2 and is required to take minimum distribution, might push him into a higher tax bracket.

Depending on his current age, it might be worth while to take some money from traditional retirement funds into Roth accounts. He pays taxes now (no penalty) rather than upon distribution.

Without more detail information, this is my best suggestion. It is best that he consult his tax advisor before making decisions. Try not to talk to investment companies or financial advisors about this. They make money from having transactions and a lot of time do not have clients best interest at heart.

Best wishes.

By: Ryan Q

Ryan Q — Thu, 06 Nov 2008 20:19:09 +0000

I assume your friend needs to take a disbursement from his retirement account (401k, IRA, etc) before he is aged 59 1/2? And he will be paying penalties? If that is the case, 45% seems high. Your friend will pay taxes on those funds and a 10% IRS penalty for early distribution. So whatever his tax bracket is (10%-35% at incomes over $300k+ as a single person) plus 10%. So he/she will only pay 45% if he makes a ton of money.

Bottom line is that there is no way around it. If he takes a distribution he will pay a penalty. There is only one way around it: If he/she can afford the payments, he/she can take a loan against his retirement account. As long as the payments are made on time, penalties and taxes can be avoided.

Ignore any company that tells you they can get around it. They are doing something illegal/unethical or are completely scamming you. Hope this helps.

By: nativespirit0

nativespirit0 — Thu, 06 Nov 2008 18:27:15 +0000

Your not real plain on part of your question but what ever he does if its a retirement from his job don’t cash it and he shouldn’t be taxed .Roll it over into a Ira or something like that and what ever he did to get taxed his financer should be able to help him undo .He might want to call Dave Ramsey he on radio 570 am from 1-4 Monday though Friday and he gives very good free advise .Hope this helps .

By: billy bad ass

billy bad ass — Mon, 03 Nov 2008 12:03:57 +0000

If you have a spouse you can give a one time tax free “gift” I think the maximum is 40,000 but it could go up to 60. Good to research the idea though.