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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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hello- i want to withdrawal my retirement funds from the state

Resolved Question:

hello-
i want to withdrawal my retirement funds from the state of texas, as i am no longer employed with them. however, i do not want to pay 20% of my funds to do this.
i read that i can rollover to a regular IRA with no penalties. i then want to cash that out to pay off some of our debts. but i still think there are penalties to do this.
what are my options to get all of my money? it is about $10,000.

thanks.
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

Unfortunately, there's no way to cash out the funds and avoid paying tax all together.

MyVirtualCPA :

You can transfer, or rollover, to an IRA and that would defer taxes to a future period

MyVirtualCPA :

However, when you take the funds out, you will have a 10% penalty if you are under 59.5 and you will also owe income tax

MyVirtualCPA :

There's no way to avoid this.

MyVirtualCPA :

Is there anything else I can assist you with today?

Customer:

Geez. I really didn't want to hear that but I guess 10% is better than 20%.

MyVirtualCPA :

Well you still owe income taxes on the amount

MyVirtualCPA :

The penalties are 10% but you will still owe tax

Customer:

How long will i have to wait to cash the IRA? And how much do you think the taxes will be?

MyVirtualCPA :

You can cash the IRA out whenever you want to. The taxes depends on your other income. It's taxed just like other income and your tax rate increases as your income increases

Customer:

could you tell me how much

Customer:

can you tell me how much i will owe if i tell you how much i make

MyVirtualCPA :

No, because I know nothing about your situation. What kind of income do you have? Do you take the standard deduction or do you itemize?

MyVirtualCPA :

What's your filing status

MyVirtualCPA :

Do you have any children?

Customer:

i make around 40 a year and my husband makes 55. we file jointly. no children. we take the standard deduction.

MyVirtualCPA :

That puts you at around the 25% tax bracket so your taxes would be $2,500 on top of the $1,000 penalty

Customer:

oh my gosh. my husband and i were just wanting to pay off some debt with this money. would you recommend just rolling it into an ira and making larger payments to decrease that debt?

MyVirtualCPA :

I would recommend keeping your funds in the IRA until you are over 59.5

MyVirtualCPA :

So yes, you could just make larger payments to chip away at this debt.

Customer:

okay. there should be no charge to roll this money over to the ira, correct?

MyVirtualCPA :

Correct, there would be no charge to do this. It would be free and no tax would be due

Customer:

should i try to diversify where i keep my iras or should i keep them all with the same institution?

MyVirtualCPA :

I would keep one IRA if I could

Customer:

so, i can roll this money into an existing ira? and i believe it is a roth. does that make a difference?

MyVirtualCPA :

If it is a roth you could not roll into that. You would need to roll into a traditional. If you roll into a roth you will owe tax.

Customer:

then can i roll the roth funds into the traditional at a later time for free?

MyVirtualCPA :

You would not want to roll roth funds into the traditional account. If you have roth and traditional you will have two IRA accounts and that is okay

Customer:

okay. are there different types of traditional and what type should i use?

MyVirtualCPA :

No, there's only one type of traditional IRA

Customer:

okay. i think you have answered all of my questions.

MyVirtualCPA :

Okay that's great. If you are satisified, please rate my response as "excellent' so that I may receive credit for assisting you today

Customer:

thank you. i will. have a great evening.

MyVirtualCPA :

You too! It was a pleasure working with you today.

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 15588
Experience: Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
Megan C and 7 other Tax Specialists are ready to help you

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