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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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I Am in a last resort sort of situation and am considering

Resolved Question:

I Am in a last resort sort of situation and am considering taking an early withdrawl from my tsp (federal employee) retirement account. My income from my 2012 tax return was aproximately 70k, I claim 3 dependents, and claim a mortage interset deduction of roughly 8000 per year. My question is: how much in taxes and fees roughly should I expect to pay if I were to take a 100k early withdraw?
Submitted: 8 months ago.
Category: Tax
Expert:  jgordosea replied 8 months ago.

Greetings,

 

Sorry to hear of your difficulty.

 

Using an online 2013 calculator head of household status and three dependents with 70 K income and 8K deduction gives about $6200 federal tax estimated.

 

Changing that to 170K of income gives about $34200 or about $28000 more federal tax.

 

There may also be a 10% penalty on early withdrawal of the retirement plan when you are not age 59 1/2, disabled or meet another of the exceptions to this penalty.

For a chart of the available exceptions please see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics---Tax-on-Early-Distributions

The TSP is a Qualified Plan in the chart.

So including the penalty that would make it increase of 38,000 federal tax on the 100,000 taken.

 

Michigan state tax is about $2340 for 70K income and $6690 170K income for an increase of about 4350 state tax.

 

Total increase in tax for federal and state about 32,350 and unless you can qualify to be exempt the additional 10% or 10K penalty gives total tax increase about 42,350 on the 100K.

 

Total tax due about 44,200 federal and 6700 state or 50,900 on the 170,000 including the penalty.

 

As you likely know, if there is any way to get the funds other than by a withdrawal that will be better as your tax and penalty could be more than 42% of the amount

taken.

 

At the very least perhaps it could be arranged to take the funds out some this year and some next year to spread the tax and give more time to pay.

 

Please ask if you need more discussion or clarification.

Thank you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3004
Experience: I've prepared all types of taxes since 1987.
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