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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13323
Experience:  15years with H & R Block. Divisional leader, Instructor
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Hi My wife and I are in the process of refinancing on our

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Hi
My wife and I are in the process of refinancing on our house and need to show about $5K more cash in my checking account than we have available.
I also starting working for a new company earlier this year and they match 50% of percent of 401K contributions (into the ESOP program). In order to maximize the employer's contributions I need to contribute an additional $6600 into my 401K (the company will match $3300 of this). I plan to withdraw this $6600 from my Fidelity IRA (rollovers from previous 401K's) and then have the company withhold $1320 for 5 weeks from my pay check. I will obviously pay tax on the early distribution, but this will be offset by the tax I won't have to pay on the payroll reduction of $6600. From what I understand, there will be a 10% penalty (is this correct?) for early distribution (so it costs me $660, to get $3,300 from the company), and satisfies the cash requirement for the refinance
From what I understand, if I contribute that $6600 to a retirement plan within 60 days, I can avoid the penalty and the tax?. If I have the distribution made to me, deposit in my checking account, and can show contributions to my 401K of $6600 within 60 days of the distribution from the IRA, will I avoid the penalty?
Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
You are correct about the 10% penalty. If you are under 59 1/2 you will have an additional 10% penalty on the withdrawal.
The rollover information is correct too. You have 60 days to rollover the total amount (this includes any tax withheld).
It is when you get down to the contributions to your 401K that you get a little off track.

Robin D. :

If you are looking to have your 401K contributions made through your employment count as the rollover then no.

Robin D. :

The 401K would really need to be a direct transfer unless your plan allows you to be the conduit. So you would need to check with the plan administrator

Customer:

so, I'm under 59 1/2, so I would be looking at tax + 20% penalty then. What would the tax be?

Robin D. :

You would be looking at tax plus a 10% penalty. The tax would be whatever your regular rate of income for tax is because the amount is simply added to your income for the tax year

Robin D. :

I can get you the actual rates if you would like

Customer:

Yes please on the tax. How is it only 10%? You said "If you are under 59 1/2 you will have an additional 10% penalty"

Robin D. :

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Customer:

did you mean 10% additional to the tax or 10% on top of first 10%

Robin D. :

The additional part is the tax and the additional penalty but the penalty is just 10%

Robin D. :

10% on top of regular taxc

Customer:

Great. I assume those are federal taxes. is there state tax due too?

Robin D. :

Federal that is correct.

Robin D. :

I will see for Illinois

Robin D. :

Illinois has a flat income tax rate which applies to both single and joint filers. The Federal Income Tax, in contrast to the Illinois income tax, has multiple tax brackets with varied bracket width for single or joint filers. 5%

Customer:

OK thanks

Robin D. :

You are most welcome.
Your positive rating is always thanks enough.


Robin D. :

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Robin D. :

I really enjoyed working with you – please feel free to request me again when you come back to ask another question.

Robin D. :

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