Tax/IRA Question

stephjonesAugust 2, 2011

Husband took an early retirement buyout last year with a bonus. But we messed up on the taxes and we ended up owing the Feds quite a bit.

We are getting hit with penalties/interest out the wazoo! Would it be possible to take the money we owe from our retirement fund and just pay the Feds off. I feel like if we don't get it paid off, it just going to keep growing. I know we will get hit will penalties for taking the money from the retirement fund, but I feel like it would be better than the interest/penalties we're being hit with from the taxes we owe.

Can someone please advise on this. Thank you.

Thank you for reporting this comment. Undo
Billl

"Can someone please advise on this."

Yes, go see a tax professional. Seriously. The average person is capable of handling the average return. Very few people are qualified to handle a complicated return. If you screwed it up the first time, that is a good indication that you aren't one of those few.

BTW - it is quite possible that the "Feds" are wrong too. A lot of people working at the IRS aren't really experts either.

"but I feel like it would be better than the interest/penalties we're being hit with from the taxes we owe. "

Feelings don't enter into tax calculations. There is a mathematical answer to your question. If you don't have the expertise to do the calculations, you really need to see someone who does.

    Bookmark   August 2, 2011 at 8:59AM
Thank you for reporting this comment. Undo
Mercymygft

billl...We didn't mess up "filing" our return. The problem was there were no upfront taxes taken out of the money we received from the buyout. So, too much income, not enough taxes taken out. So, yes we do owe taxes on that money. Plus we did not have that much in deductions.

Anyway I'm pretty sure what we owe is correct. My question has to do with taking the money from our retirement account to pay the govt.

    Bookmark   August 2, 2011 at 9:50AM
Thank you for reporting this comment. Undo
sushipup1

As billl said, there's a mathematical answer to your question, and yes, you need professional help. If you are too young, there will be penalties for withdrawals from your retirement account, plus you will owe taxes on the money, unless it's a Roth IRA. But that will be tax due this year, not last year.

Talk to someone who can crunch all the numbers for you. There is a real $$$ answer out there, not a feeling or an opinion. Get a professional to help.

    Bookmark   August 2, 2011 at 9:54AM
Thank you for reporting this comment. Undo
Billl

The easy answer is No. You should not use retirement money to pay a tax debt acquired by trying to retire early. You got a bunch of cash in the buyout (which is why you owe taxes.) You should use that money to pay the taxes. If you used that money for something else, you should "undo" that to pay your debt.

The real answer is "it depends." If you can't crunch the numbers yourself, asking on the internet is not going to be sufficient. You need the help of a real tax professional to help you wade through all of the "it depends" questions.

    Bookmark   August 2, 2011 at 10:45AM
Thank you for reporting this comment. Undo
weedyacres

No one can answer this without way more detailed data. You need to share:
-What your AGI was last year
-Your total tax bill last year
-How much tax was witheld last year
-How much you owe the IRS from the difference between the 2 above
-What penalties and interest they are charging you (including details on when more penalties are being added)
-What sort of payments you are making now, and what you are able to make if you squeeze your budget a little more.
-What your income is projected to be this year
-How big your retirement nest egg is, and in what form (401k, IRA, Roth, etc.)
-How old your husband is

If you care to open your kimono and share all that, we might be able to provide you a little more educated guess, but the mathematical answer depends on your info above.

For example, if you owe $10,000 and your income is $100,000 the answer is probably "just tighten your belt and pay it off in a few months." If you owe $100,000 and your income is $10,000, then you might have no other options than your retirement nest egg, regardless of how big it is. But all the other stuff factors in as well, like how fast the penalties and interest are piling up and what tax bracket you're in now.

    Bookmark   August 2, 2011 at 6:21PM
Thank you for reporting this comment. Undo
vala55

See a lawyer they can get the amount knock down.

    Bookmark   August 2, 2011 at 7:42PM
Thank you for reporting this comment. Undo
marie_ndcal

Seek professional help specializing in this field --that is a lawyer that is trained dealing with the IRS. There are plenty avaiable.

    Bookmark   August 2, 2011 at 9:46PM
Thank you for reporting this comment. Undo
kudzu9

You have asked what you think is a simple question, but it is really a complicated question, and depends on many pieces of information that you have not included. You are not going to get good answers here. Take the advice of almost everyone here and see a professional tax advisor.

    Bookmark   August 6, 2011 at 3:16PM
Thank you for reporting this comment. Undo
jlhug

I suggest that you find a local enrolled agent. An enrolled agent is a tax professional who "enrolled" to practice before the IRS. He or she can help you sort out which option is the best for your individual situation.

    Bookmark   August 11, 2011 at 12:21AM
Sign Up to comment
More Discussions
Spending Breakdown
My wife and I have tracked our spending over the last...
rjexit5
Private College Savings - How much is enough?
We have approximately $62,000 saved in a 529 plan for...
RealHousewifeofNJ
anyone had trouble getting an Amex card accepted?
I have an Amex card with a very good cashback program,...
davidrt28 (zone 7)
Family Banking Concept, anyone heard of it?
I did a search here and did not see any similiar thread....
rjinga
Buying a car
I am planning to buy a car, but my credit rating is...
HerscheLL
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™