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.
Yes. Unfortunately, you have to pay your taxes with "after tax" dollars.
But what about if I wait until I am 59 and 1/2 will I only avoid that extra 10% tax?
As we discussed yesterday, you won't be subject to the 10% penalty as you are inheriting the funds due to death.
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?
That's correct. The 59 1/2 only pertains to the penalty.
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
what if I roll over to an ROTH IRA
I don't have any existing IRA now so maybe I can't get a ROTH IRA yet. Please advise
Even if you could do that (which you can't) you would still have to pay taxes on it first.
OK got it. So, it's best to just liquidate and ask the bank to withhold income tax before sending me the cash
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?
Im in Massachusetts
Probably the best alternative for you. Yes you will have to pay state tax & yes they can withhold that too.
OK. I know what to do now. Thanks