How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Anne Your Own Question

Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1780
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
5242771
Type Your Tax Question Here...
Anne is online now
A new question is answered every 9 seconds

Hi. If my husband quits his job or is let go, can we use his

Resolved Question:

Hi. If my husband quits his job or is let go, can we use his 401k to pay our mortgage and use it for our living expenses without penalty? He is 50 yrs old. Thank you. We live in Ohio if that makes a difference.
Submitted: 2 years ago.
Category: Tax
Expert:  Anne replied 2 years ago.

Anne :

Hi

Anne :

Thank you for using justanswer.

Customer:

You're welcome, I hope you can help me

Anne :

Yes....I know the answer ....but I always want to give you the links to back it up....do you mind waiting just a second?

Anne :

(slower computer here)

Customer:

That sounds good....I'll be happy to wait.

Anne :

Thank you. Unfortunately, the answer is no....if he had separated from service (quit his job) at age 55 or later, then he could have taken it penalty free

Anne :

(my proof is still loading)

Anne :

I generally tell people to either leave the 401K where it is if its doing well, or to roll it into an IRA

Anne :

The reason is that if you take %

Customer:

Well, the thing is that we need it to live on until he finds another job and in these times it's not that easy to find a job paying what you need.

Anne :

if you take $50,000 (full $ amount in 401K) and it turns out that you really only needed $25000, then you've paid penalty and tax on all of the distribution

Anne :

I understand where you're coming from....but you can take multiple distributions. You don't have to only take 1

Customer:

Oh, I see......is there a penalty each time?

Customer:

What is the percentage of the penalty?

Anne :

The hope is that your husband will find a job before you empty the 401..no, the penalty is on the TOTAL withdrawls

Anne :

10%

Anne :

plus your graduated tax bracket

Customer:

He seems to think he was going to lose 30%

Customer:

what do you mean by graduated tax bracket.....the taxes we'll have to pay on what we withdraw?

Anne :

yes

Customer:

So say we take out increments of $10,000 and we do it 3 times.....

Anne :

many companies withhold 20-30% automatically however most also allow you to "opt out" of the 30% and only have 20% withheld if that's what you want

Anne :

However, depending on your income, lowering your withholding could cause you to have a tax payment due at the end of the year

Anne :

if you take 3 distributions of $10,000, then you will receive 1 1099R for $30,000

Anne :

think of it in terms of your W2

Anne :

you get paid weekly or biweekly, and only receive 1 W2

Customer:

and that's what we pay tax on.....but where does the 10% penalty come in and i'm confused on what you said about companies withholding 20-30%.....is that also for taxes?

Anne :

Yes. I've been doing taxes 25 years, so let me give you some background if you don't mind...ok?

Customer:

so are we going to lose 10% plus 20 to 30 percent also

Customer:

ok, thanks

Anne :

you will pay 10 % as a penalty for taking the money before age 59 1/2, AND the distribution will be added to all of your other income (W2, interest income, etc) and become part of your Adjusted Gross Income, and you pay on your AGI at your individual graduated income tax level.

Anne :

Where I really started seeing alot of this was in the early 80's when the hospitals here asked people to take early "buy outs"

Anne :

these buy outs included their pension plans, and the people didn't understand that the money was taxable AND subject to the 10% penalty (most hadn't reached age 55 yet)

Anne :

So, in order for people to not have to pay so much tax at the end, and in order to follow IRS

Anne :

IRS's "pay as you go" plan....the IRS passed legislation that all companies must withhold at least 20%

Anne :

(the 10% penalty, and the other 10% to help cover the additional income )

Anne :

For most people that wasn't enough

Anne :

so they "upped it" to 30%

Anne :

Like I said, you can ask to have less withheld, but I wouldn't do that without running the numbers first

Anne :

Also, its now close to the end of the year

Customer:

so if we have $90,000 after it's all said and done we'll get about $60,000????

Anne :

if you took a smaller distribution now, you could take more in Jan, and you will probably have less overall income due to your husband being unemployed at the moment

Customer:

and that will be looked at as income that we have to pay more taxes on at the end of the year???

Customer:

OH, I see what you're saying

Anne :

If your employer doesn't want to do this, then go to a bank and do 'AN INSTITUTION TO INSTUTION" rollover to a Traditional IRA

Anne :

That way, you have more control over when you want your money, but the 10% penalty and the fact that the additional income is taxable still applies

Customer:

And you suggest just taking it out as we need it......but we only take the 10% penalty once, right?

Anne :

Here's your link by the way

Anne :

once per year

Customer:

Oh, so if we take out some this year we will have to pay 10% more at the beginning of next year, correct?

Anne :

yes, but if your overall income is less, then you pay at a lesser rate based on your income

Anne :

I can't make the 10% disappear, but I can help you pay less tax overall

Anne :

Your link came from here:

Anne :

Does that make sense to you?

Anne :

Its a hard concept

Customer:

Perfect sense!

Anne :

good, cuz I'm all for paying the bare minimum to the IRS

Customer:

I surely don't see why they are trillions in debt.....they sure do suck the money from the taxpayers, that's for sure.

Anne :

let me tell you a true story

Anne :

my husband HONESTLY believes that IRS is at the root of ALL evil in this world

Anne :

and that myself, and all of my tax prep colleagues are just IRS agents in disguise

Anne :

he HONESTLY believes this

Anne :

I've been a tax preparer for 25 years, we've been married 7 years

Anne :

I figure he knew what he was getting

Anne :

however, he refuses to go to the yearly banquet.....cuz he's in "enemy territory"

Customer:

You've got to be kidding me.....wow!!!! So to sum it up.....10% penalty, and 20% tax....and take only what we need to avoid more taxes.

Anne :

You've got it

Customer:

That proves he REALLY loves you :)

Anne :

and my husband would absolutely agree with your point of view

Anne :

(so do I, but I'm not usually allowed to say so)

Anne :

lol I never thought of it like that

Customer:

I won't tell anyone lol......thanks for all your help and I will be using the site in the future!

Anne :

Please come back if we can hep you again....you may ask for me by name

Anne :

however

Anne :

I'm not here much during tax season, so please put a long time limit if the question can wait

Anne :

if not, there are alot of good pros here

Anne :

they're just not as much fun!

Customer:

Thanks Anne, I'll keep that in mind :) No, you have been wonderful, that's for sure! Take care and thanks again!

Anne :

You're most welcome

Anne :

Best of luck to you

Customer:

Thank you very much

Anne :

Anytime

Customer:

By the way....is this conversation in my email or should I save it?

Anne :

I'm sorry that I don't know the answer to that

Anne :

I've never seen the customer side

Anne :

but I got paid recently for an answer I gave n 2010

Anne :

so it must be saved SOMEWHERE

Anne :

I know you can go to your "profile" and do a

Anne :

"search"

Anne :

(I hate this format.....it keeps jumping )

Anne :

but if you want to be safe, by all means save it

Anne :

or bookmark it

Customer:

:) good idea, thanks!

Anne :

hey, I never said I was computer literate...lol

Anne :

I started taxes before computers.....some days I wish it was still that way

Anne :

it was so much less complicated

Anne :

If you have no other questions....I'll hit "save & exit" from my side...you can proceed to "accept" from here if you're done

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1780
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and other Tax Specialists are ready to help you

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.