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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12524
Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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my message may have gone through before I finished...so here

Resolved Question:

my message may have gone through before I finished...so here it is again.

1) I am disabled. Will I still be charged the 10% penalty for early withdrawl on my 401K
2) I received approx. 26,000.00 in social security disablilty.
3) I would like to withdrawl 60,000.00 or 70,000.00 to purchase a condo (It would not be considered a new homeowner purchase.)
4) My question is, what percentage I will need to put withdrawl from the 401K, to cover the purchase price and the taxes and any penalties. The total amout needs to be a withdrawl, so the taxes would also be considered a withdrawl, right?

Thank you,
Debra Wattenbarger
Submitted: 9 months ago.
Category: Tax
Expert:  Megan C replied 9 months ago.

Megan C :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

Megan C :

How are you today?

Customer:

Sadly, I have the flu

Megan C :

In order to avoid the 10% penalty you would need to be considered permanetly disabled

Megan C :

Oh man, I'm so sorry.

Customer:

I am permanently disabled

Megan C :

Yes, you receive social security so you would meet the IRS definition of disabled.

Customer:

how much tax will I be assessed and when I roll that into the 70K I want to withdrawl, what would be the total amount taken out of my 401k

Megan C :

Also you will owe tax on the withdrawal, and typically the administrator will hold 25% back for taxes

Customer:

I will be above 25% tax bracket, because they will add my ss income as taxable. That is what they did last year

Megan C :

So you will be in the 28% tax bracket - are you married or single?

Customer:

single

Megan C :

Let me look at the bracket to make sure.

Customer:

thanks

Megan C :

Yes, you would be in the 28% tax bracket.

Customer:

OK, so if I withdrawl 70K for the condo, and they put aside 28% of that for taxes, what would the total amount of the withdrawl? (I think they tax me on the 28% tax withdrawl as well as the amount of funds I need)

Megan C :

Yes, if you withdrew 70,000 you would have $19,600 withheld for taxes, so you would get $70,000 - $19,600

Customer:

OK then. How much taxes do I need to put aside, so that I can get the full 70,000 for the condo? Is there a calculation for that?

Megan C :

Yes let me do that for you.

Customer:

if you could also give me the equation, so that if I need to withdrawl more or less, I can figure it out?

Megan C :

If you withhold $97,222 you will net $70,000

Customer:

but, won't they add in my social security ($26,000) as income? That would put me in a higher bracket, I believe. That is what the CPA told me last year.

Megan C :

You're still in the 28% bracket with your IRA withdrawal

Megan C :

and the Social Security

Megan C :

You're in the 28% bracket up to $183,000 of income

Megan C :

so you're not going higher than 28%

Customer:

that's great. Because I have no savings and my ss is my only income, I want to make sure that I withdrawl enough to cover all taxes.

Megan C :

I understand.

Customer:

So, when I make the withdrawl, I tell my 401k to also put aside 28%? or how do I tell them what I want to do?

Customer:

would they just use the calculations you did for me? What is the equation, so that I can know and double check there work.

Megan C :

Well, they will probably just withhold 20-25% they don't typically give you an option on how much

Megan C :

and then you would set the rest aside or send in an estimated payment

Customer:

If they do that, how will I know how much more I have to withdrawl

Customer:

can you give me the equation?

Megan C :

If you withdrawal $97,222 subtract out $27,222 to arrive at the $70,000 that you need

Customer:

Oh, I see what you're saying now. I would still withdrawl the 97,222, but send in the difference myself.

Megan C :

Yes, that is correct.

Megan C :

Is there anything else that I can assist you with today?

Customer:

will our conversation be saved? I just tried to do it and now I cannot see the conversation

Customer:

will it be emailed to me?

Customer:

I messed up

Megan C :

Yes, it will. Once you rate, your answer will be emailed to you

Megan C :

It's not lost. No worries. Also, when you log into JustAnswer you will be able to pull it back up

Customer:

Whew. OK, then. I believe I got the information I need to go condo shopping and have enough money to pay for my taxes.

Megan C :

I understand. It's good that you are planning ahead

Customer:

Thank you so much!

Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 12524
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 4 other Tax Specialists are ready to help you
Expert:  Megan C replied 9 months ago.
Thanks, Debra for your positive rating. Please come back and visit me any time you have a tax question that needs answered. It was a pleasure working with you today.

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