topic Re: Retirement withdrawal in Personal Finance

Retirement withdrawal

IOBA — Fri, 24 Feb 2017 17:02:48 GMT

If I withdraw from one retirement account this month and put it in a new retirement account in July, will the IRS consider it a withdrawal that needs to be counted as taxable income?

Re: Retirement withdrawal

Anonymous — Fri, 24 Feb 2017 21:11:49 GMT

I would guess that the answer is almost certainly is Yes, though I am happy to be corrected by someone more knowledgeable.

The key is the time lag. It would probably be a different thing if you were trying to transfer (on the same day) money in a Vanguard IRA into an IRA managed by Fidelity, say.

Curious to see what others say.

Re: Retirement withdrawal

enjoimorenow — Sat, 25 Feb 2017 03:21:00 GMT

There are ways to roll it over without paying taxes on it, but not from February to July. The easiest is to just transfer from one IRA to another, but if you have to withdraw the funds and deposit them again you have 60 days to complete the rollover without the IRS considering it a distribution and taxing you... I would be careful and think twice about other possible options as you will also likely pay a penalty on top of any taxes for withdrawing before retirement. I believe only some events qualify you to withdrawl without paying the penalty (first time home buyer and school expenses)

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

How do I complete a rollover?

Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.
Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.
60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.

When should I roll over?

You have 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA. The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circumstances beyond your control.

Re: Retirement withdrawal

IOBA — Tue, 28 Feb 2017 02:05:09 GMT

Thank you for the link.

I read the information on the webpage. The bold/underlined condition - sounds like it would apply to my situation, right? I have already requested the withdrawal. Age is not a problem (no fees for being underaged). The company does a mandatory withholding of 20%.

I don't feel like I have any other choices right now. I am borrowing from one of my adult kids, cashing out an annuity, and doing all kinds of things to generate the needed funds. I have two chunks of money coming in. One is back pay. Although I have a letter stating back pay is owed, they are struggling with the math. I had thought those funds would have arrived by now, but nope. HR says maybe they can tell me something next month. And my place was suppose to have sold. Have the agreement and all that, but the money has not materialized yet. Was suppose to close in Jan, but that didn't happen. Things got pushed back. ANd I haven't heard from the Realtor in a few weeks. (I know, not a good sign. But all things given, I am counting my blessings and being patient.) So small chance that the other funds will arrive before the withdrawal does. (It apparently takes a few weeks to process a withdrawal.)

3. How do I qualify for an automatic waiver?

You qualify for an automatic waiver if all of the following apply:

The financial institution receives the funds on your behalf before the end of the 60-day rollover period.
You followed all of the procedures set by the financial institution for depositing the funds into an IRA or other eligible retirement plan within the 60-day rollover period (including giving instructions to deposit the funds into a plan or IRA).
The funds are not deposited into a plan or IRA within the 60-day rollover period solely because of an error on the part of the financial institution.
The funds are deposited into a plan or IRA within 1 year from the beginning of the 60-day rollover period.
It would have been a valid rollover if the financial institution had deposited the funds as instructed.

So do you think this would apply in my case?

Re: Retirement withdrawal

tacpoly — Tue, 28 Feb 2017 02:29:38 GMT

NO! Please read the conditions of the Automatic Waiver carefully: you qualify only if ALL of the listed bullet points apply, not just the one that you bolded and underlined.

Re: Retirement withdrawal

enjoimorenow — Tue, 28 Feb 2017 18:39:34 GMT

Exactly what tacopoly said....

You must meet ALL conditions to qualify for a waiver.

You cannot take money out of a retirement account to use as a loan and then deposit it into another retirement account at a later date and hope to avoid the penalties and taxes you would owe.

I would seriously consider other options before trying to use your retirement account as a short term loan. You might even call and ask if they would allow you to take out a small loan against your retirement account because sometimes they will allow you to do that and you will pay a lot less than you would in taxes and fees to take a distribution.

Re: Retirement withdrawal

IOBA — Thu, 02 Mar 2017 02:29:48 GMT

Thanks. Got it.

Re: Retirement withdrawal

sarge12 — Thu, 02 Mar 2017 02:45:21 GMT

@enjoimorenow wrote:
There are ways to roll it over without paying taxes on it, but not from February to July. The easiest is to just transfer from one IRA to another, but if you have to withdraw the funds and deposit them again you have 60 days to complete the rollover without the IRS considering it a distribution and taxing you... I would be careful and think twice about other possible options as you will also likely pay a penalty on top of any taxes for withdrawing before retirement. I believe only some events qualify you to withdrawl without paying the penalty (first time home buyer and school expenses)

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions

How do I complete a rollover?
Direct rollover – If you’re getting a distribution from a retirement plan, you can ask your plan administrator to make the payment directly to another retirement plan or to an IRA. Contact your plan administrator for instructions. The administrator may issue your distribution in the form of a check made payable to your new account. No taxes will be withheld from your transfer amount.

Trustee-to-trustee transfer – If you’re getting a distribution from an IRA, you can ask the financial institution holding your IRA to make the payment directly from your IRA to another IRA or to a retirement plan. No taxes will be withheld from your transfer amount.

60-day rollover – If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. Taxes will be withheld from a distribution from a retirement plan (see below), so you’ll have to use other funds to roll over the full amount of the distribution.
When should I roll over?
You have 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA. The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circumstances beyond your control.

This depends largely on age and employment as well as other factors, disability for one. Generally if you are over 55 and become unemployed, you may withdraw from 401k or tax defered retirement without penalty. If employed, you must be 59 1/2 to withdraw without penalty. If permenatly and totally disable, you may withdraw without penalty at any age. I am 58, have been disabled since I was 55, but do not have to use the disability exception to avoid the penalty...55 years of age and unemployed is enough.

Re: Retirement withdrawal

enjoimorenow — Thu, 02 Mar 2017 03:32:21 GMT

Ya, i agree

Re: Retirement withdrawal

sarge12 — Thu, 02 Mar 2017 03:27:17 GMT

@enjoimorenow wrote:
Ya, but he is not asking about that... even if he is of age to take money out of the IRA, he would have to pay taxes on it, and he is trying to take a distribution and avoid paying taxes on it by doing an extended rollover

Yes, but the poster replied to him and mentioned the penalties. I was just noting that penalties may not even apply. Many hear that you must be 59.5 years old to withdraw without penalty. I am 58 and have been drawing any amount I wished out since I was 55 without penalty.

Re: Retirement withdrawal

enjoimorenow — Thu, 02 Mar 2017 03:33:54 GMT

well, i said you would LIKELY pay penalties unless you had a qualifying event, of which I know that first time home buyers, and school expenses are some reasons that you can take a distribution and avoid paying the penalty.

Re: Retirement withdrawal

sarge12 — Thu, 02 Mar 2017 04:24:20 GMT

@enjoimorenow wrote:
well, i said you would LIKELY pay penalties unless you had a qualifying event, of which I know that first time home buyers, and school expenses are some reasons that you can take a distribution and avoid paying the penalty.

It was not my intention to be in dispute with your comment, and I hope it did not come off that way. I do however know some people are unaware that seperation from service to employer in the calander year you turn 55 removes the 10% penalty on 401k or qualifying retirement. I know until it actually applied to me, I had no idea. I was only seeking to further inform those who might be unaware of this. I was not seeking to contradict your very valid point, if it seemed I was, I apologize.

Re: Retirement withdrawal

enjoimorenow — Thu, 02 Mar 2017 10:19:36 GMT

No worries! thank you for sharing!