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taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 385
Experience:  Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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I am 53 years old and a resident of California. I retired from

Resolved Question:

I am 53 years old and a resident of California. I retired from my place of employment because of a reorganization. In March I began receiving pension benefits from Cal PERS (approx. $1800 per month) as well as unemployment ($450 per week). Unemployment will end in March 2014. I do plan to begin my job search in the near future and hopefully return to gainful employment.

Unfortunately I have debt on two credit cards totaling Approx. $41,000 and pay approx. $1,100 monthly to cover the payments. I have saved (tax deferred) approx. $100,00 in a 457 Plan. I rent and am in a lease until 12/31/13.

My combined pension and unemployment benefit do not cover my monthly expenses and credit card debt. I was planning to take an early withdraw from my 457 plan to pay off the credit card debt. Year to date I have received approx. $83,000 in earnings and a payout of vacation benefits.

Questions:
1. What percent of the early withdraw from the 457 Plan ($100,000) will be taken for state and federal taxes?

2. Would it be more advantages to take a few smaller withdraws from the 457 Plan versus taking a lump sum?

3. I want to be sure enough tax is being withheld form all sources of income so that I do not owe a large sum at the time I file my 2013 ax return. Based on current earnings to date, pension benefits, unemployment and a $100,000 early withdraw from the 457 Plan I anticipate total taxable income of approx. $200,000. Are there tax tables or a formula that can be used to estimate total taxes for the 2013 year?

Based on my current scenario I am trying to pay off the debt and limit my tax liability.
Without the debt I can at least maintain my current apartment and monthly expenses.
Submitted: 1 year ago.
Category: Tax
Expert:  taxmanrog replied 1 year ago.
Welcome to Just Answer! Thank you for allowing me to answer your question. I am sorry to hear about your situation. I will do my best to help you!

First of all, if your income will be about $200,000, using the standard deduction of $6,100 for 2013 and the personal exemption of $3,900, your taxable income will be $190,000. As a single taxpayer, this puts you in the 33% tax bracket. The 2013 income tax on this amount is about $47K, using the 2013 tax tables. You are JUST inside the 33% bracket, by less than $10k! If you drop your income below about $185k, you will only be in the 28% bracket.

However, as you are under age 59 1/2, and also under age 55 when you seperated from employment, any withdrawals from your retirement plan will also be subject to a 10% excise tax under IRC §72(t). This boosts the Federal tax by $10k to about $57k.

For California, you will be in the 9.3% tax bracket, so you will pay about $16k in income tax. Now, depending on when you pay the CA tax, you may be able to drop your Federal income tax bill a bit. If you pay the CA tax before December 31, you can take this as an itemized deduction, and it will drop your Federal liability by about $2.5k +/-.

If you take out smaller amounts to make the monthly payments on your debt, you will be better off, I believe! If the $200k figure includes $100k of retirement withdrawals, then without them you only have $100k of income. Then, you would only take out what you need, smaller amounts (the cumulative during the year being less than $90k), you would the only be in the 25% bracket for Federal (still 9.3% for CA). You would still be subject to the 10% excise tax on any amount you took out.

Have you tried talking to the credit card companies? It is such a waste to spend so much unnecessary tax! Often they will take settlements from unemployed individuals who have fallen on hard times or lost jobs. I had a recent client who setteled for literally $0.10 on the dollar! He paid 1/10 of the bill. It hits your credit report, and the forgiveness of debt is also taxable income, but it has no 10% penalty! And the hit to your credit report, depending on your spending habits and credit usage, might be negligable.

I sincerely XXXXX XXXXX good luck with your situation! This economy has been hard on all of us!

I hope that I have answered your questions. If I have, please rate me positively. I would appreciate that! Again, thanks!
taxmanrog, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 385
Experience: Licensed CPA, MA, MST with 29 year's experience. Teach Accounting and Tax courses at Masters level.
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