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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3743
Experience:  Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi, Ive been self-employed now for several years with my online

Resolved Question:

Hi, I've been self-employed now for several years with my online businesses. But I sold them off in late 2011 and have been living off my savings ever since. I do have little bits of sales come in here and there, but not enough to pay all my expenses...so I continue to drain my savings account.

Recently, I'm starting to do freelance copywriting for some income. It is starting to help me not take out so much of my savings. But my savings account is getting pretty depleted.

I have a SEP IRA with Vanguard with $11k in it, and I'm thinking of taking an early withdrawal from it to help me financially...but I'm not crazy about the 10% penalty. I'm 38 years old currently.

Since I'm self-employed, pay my own expenses each month including health insurance (over $300 a month now), etc. is there any way I can avoid the 10% penalty?

And lastly, will that amount be taxed as income in 2013 if I do withdraw it?
Submitted: 12 months ago.
Category: Tax
Expert:  Lane replied 12 months ago.

NPVAdvisor :

Hi, so sorry to have to be the messenger here, but if you're healthy (can't use the disability waiver), aren't using it for first time home buyer purposes, aren't going to roll over into another qualified retirement plan within 60 days of the distribution, distributing for qualified higher education expenses, or have medical expenses that aren't deductible because of the 7.5% agi floor ... then there will only be one thing that would waive the age 59 and 1/2 pre-retirement penalty ....

NPVAdvisor :

That's where you take the money out under a series of substantially Equal and Periodic payments ... essentilly over your life expectanct ... and that would be such a small amount each year, that it may not be worth it to you

NPVAdvisor :

Here's an excellent article from the Journal of Accountancy, regarding the 16 things that can waive the 10% penalty: http://www.journalofaccountancy.com/Issues/2005/Aug/WithdrawWithoutPenalty.htm

NPVAdvisor :

Na dyes if you withdraw it in 2013, it will be added to your taxable income for 2013 (one thing that might make sense is taking some this year, and some just after the 1st of the year)

NPVAdvisor :

"And yes..."

Customer: So it looks like I can't avoid the 10%. I might do it later in the year like you suggest and split it up
NPVAdvisor :

Yes, sorry, you might look at your income for the year (with this new income) and see where you might go into the next higher tax bracket and see how much you could pull this year without going into a higher bracket

Customer: Is there a good link for tax brackets?
NPVAdvisor :

Here's a calculator that calculates substantially equal an periodic payments, but again that might not be enough to help ..... Yes, do you file a single or joint?

NPVAdvisor :

Hat's the SEPP calculator

NPVAdvisor :

Single Filing Status


[Tax Rate Schedule X, Internal Revenue Code section 1(c)]



  • 10% on taxable income from $0 to $8,925, plus

  • 15% on taxable income over $8,925 to $36,250, plus

  • 25% on taxable income over $36,250 to $87,850, plus

  • 28% on taxable income over $87,850 to $183,250, plus

  • 33% on taxable income over $183,250 to $398,350, plus

  • 35% on taxable income over $398,350 to $400,000, plus

  • 39.6% on taxable income over $400,000.

NPVAdvisor :

Married Filing Jointly or Qualifying Widow(er) Filing Status


[Tax Rate Schedule Y-1, Internal Revenue Code section 1(a)]



  • 10% on taxable income from $0 to $17,850, plus

  • 15% on taxable income over $17,850 to $72,500, plus

  • 25% on taxable income over $72,500 to $146,400, plus

  • 28% on taxable income over $146,400 to $223,050, plus

  • 33% on taxable income over $223,050 to $398,350, plus

  • 35% on taxable income over $398,350 to $450,000, plus

  • 39.6% on taxable income over $450,000.

NPVAdvisor :

And remember that's TAXABLE income, subtract your personal (and any dependendant) exemptions PLUS standard or itemized deduction to get to the number to be applied to the brackets

NPVAdvisor :

Also, this is a good place to estimate your tax: (see section two... It will project both Federal AND state): http://www.tax-rates.org/kansas/income-tax

NPVAdvisor :

Still with me?

NPVAdvisor :

I still don't see you coming into the chat ... I'll move us to the "Q&A" mode now .... Maybe that will help (We can still continue the dialogue there, just not in real-time as we can here) ... Also, it may help you to see everything at once ... DO let me know if you have more questions

Expert:  Lane replied 12 months ago.
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Expert:  Lane replied 12 months ago.

Hi,

Just checking back in.

Looks like the site went down while we were talking.

Let me know if you have further questions,

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3743
Experience: Juris Doctorate, CFP and MBA, Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 12 months ago.


Thanks much.

Let me know if I can help further.

Lane

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