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Ask Stephen G. Your Own Question
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 6169
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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Submitted: 4 years ago.
Category: Tax
Expert:  Stephen G. replied 4 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.

Stephen E. Grizey :

Yes. Unfortunately, you have to pay your taxes with "after tax" dollars.

Customer:

But what about if I wait until I am 59 and 1/2 will I only avoid that extra 10% tax?

Stephen E. Grizey :

As we discussed yesterday, you won't be subject to the 10% penalty as you are inheriting the funds due to death.

Customer:

oh so it's just the tax like it's income and that would be the case for a 401K and an ESOP - same thing. Don't I avoid any taxes by signing it all over to the IRS?

Stephen E. Grizey :

That's correct. The 59 1/2 only pertains to the penalty.

Customer:

So either way -- whether I sign it over directly to the IRS or I cash it all in - I will have income tax on both.....but either way because it's inherited I will not have that 10% penalty

Stephen E. Grizey :

That's correct.

Customer:

what if I roll over to an ROTH IRA

Customer:

I don't have any existing IRA now so maybe I can't get a ROTH IRA yet. Please advise

Stephen E. Grizey :

Even if you could do that (which you can't) you would still have to pay taxes on it first.

Customer:

OK got it. So, it's best to just liquidate and ask the bank to withhold income tax before sending me the cash

Customer:

Also, what about State tax, I suppose I will also have to pay that....can they withhold state tax like they can withhold fed tax?

Customer:

Im in Massachusetts

Stephen E. Grizey :

Probably the best alternative for you. Yes you will have to pay state tax & yes they can withhold that too.

Customer:

OK. I know what to do now. Thanks

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