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DanielleCPA
DanielleCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 789
Experience:  Years of Experience in Business & Personal Taxes
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I am just two months from being 59.5 yrs old. I am ready to

Customer Question

I am just two months from being 59.5 yrs old. I am ready to roll over my 401K into
an IRA or a RothIRA. I want to take 1-15% of the total and apply that to pay off debt.
I'll be working again as of next week ... in a new job, my question is this : How do I know how much tax will need to be paid on this distribution ? and do I have to pay the taxes immediately ? can I wait until I file my taxes in April 2012 ? can I splitthose taxes over two tax yrs ?
Submitted: 5 years ago.
Category: Tax
Expert:  DanielleCPA replied 5 years ago.

DMC :

Hi and welcome to Just Answer! I'm happy to help with your tax questions. Feel free to interject at any time if you need clarification.

DMC :

Since you will be 59.5 when you make the distribution, you won't be subject to the 10% early withdrawal penalty. The money you withdraw from your 401k will be taxable at your ordinary income tax rate. So, if you are in the 25% tax bracket, it will be taxed at 25%.

DMC :

It is pretty standard to withhold 20% of taxes on 401k withdrawals, so that should cover a good portion of your taxes unless you are in a very high tax bracket.

DMC :

You cannot split the taxes on the withdrawal over 2 years, but you do not need to pay the taxes immediately. As long as you pay at least 100% of last year's tax liability or 90% of this years tax liability in your withholdings, you will not be penalized for paying in April 2012.

Customer:

OK thanks. Does a tax sheltered fixed 10 yr annuity make sense in this economic environment?

DanielleCPA and 2 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
Thanks: appreciate your honesty. This has been very helpful.
Expert:  DanielleCPA replied 5 years ago.
You're welcome. It was a pleasure to work with you.