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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10158
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I am a united methodist minister. I withdrew $18,000 from my

Customer Question

I am a united methodist minister. I withdrew $18,000 from my retirement account in 2015. They kept 20% (3600) and sent in for taxes. They left the box blank for me to decide if iit all is taxable or not. Is it all taxable income, or can I claim some of it for expenses..
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Hello

A distribution from a pension is taxable unless you had contributed money to the pension that was already taxed.

If your pension was tax deferred (all amounts in the pension was from money that had never been taxed) then you report the full distribution as taxable. The tax withheld will act as a payment for you and reduce your tax liability.

Housing allowance would have needed to be stipulated by the pension payer so you cannot claim expenses against the pension.

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Expert:  Robin D. replied 9 months ago.

I hope my answer was useful

Expert:  Lane replied 9 months ago.

Hi.

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I am a different expert. Your previous expert opted out of the question, presumably so that others could help.

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I would add that one must look at the distribution and any deductible expenses a two separate transactions. (1) The 401(k) distribution and (2) any tax deductions that you may have)

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All other things being equal, the distribution taken from the 401(k) is added to your taxable income, and will be taxed at your marginal rate (because this is coming in on top of all other taxable income for the year).

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Further, if you are under age 59 and 1/2 there will be an additional 10% penalty tax (so 1800 in this case, added to your tax bill).

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The 20% withholding is just like withholding done from a W-2. It will offset whatever additional tax this income caused.

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If your marginal tax bracket (the bracket at which any incremental income is taxed ) is, say, 25%, then the 20% withholding from the distribution wouldn't be quite enough to completely cover the additional tax caused by the 401(k) distribution.

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However, part two of this is that whatever deductions you MAY have (deductible medical expenses, travel required but not reimbursed for your ministerial duties, etc.) would reduce, dollar for dollar, ... and of course ministers can exclude from their income a rental allowance or the fair rental value of a parsonage that is provided to them as pay for their services.

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So again, you simply have to isolate the 401(k) distribution AND the withholding (a pre-payment of the tax on at least some of the distribution, potentially MORE than the additional taxation it causes) against it from the effects of other deductions and exclusions you may have.

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Hope this helps to clarify. Let me know if you have questions.

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Lane

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I hold a JD (Juris Doctorate, a doctoral degree in the law), with concentration in Tax Law, Estate law & Corporate law, an MBA, with specialization in finance & tax, as well as CFP® and CRPS designations. - I’ve been providing financial, Social Security & Medicare, estate, corporate & tax advice since 1986.

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