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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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I'm a senior on social security. I'm 64 and got on social

Customer Question

I'm a senior on social security. I'm 64 and got on social security thru disability when I was 62. When I "retired on disability" I had a IRA from my ex-employer which I started using to live. I new I had to pay taxes on the money I pulled out of the IRA and did but because of the money I received from SS and the money I pulled out of the IRA it through me into another tax bracket and I owe a huge amount of money. I can't live without using my IRA money but I being penalized for doing it. Someone told me if a Sr. Was on SS because of disability they are not penalized in pulling out the money other then the normal tax on what I pull out, I would not have to pay additional taxes.
I hope you understand what I asking and it it true?
Submitted: 6 months ago.
Category: Tax
Expert:  Lev replied 6 months ago.

Yes - that is correct - if you are disabled - you are NOT subject to penalty when are taking the money from IRA.
Moreover - there is no penalty if you are above 59 1/2.

So far - there should not be any penalty in your situation.

Expert:  Lev replied 6 months ago.

However IRA distribution is generally subject to regular income tax.

So when you plan such distribution - you need to avoid large distributions in any single year and avoid being pushed into higher tax brackets.
Let me know if you need help to plan your distributions.

Customer: replied 6 months ago.
That was and is the problem, I did pull out large amounts in 2014 to move to Airzona from Calif. so I could buy a house and my daughter needed some money. Because I went over the SS amount I could earn H&R Block said my tax rate was much higher like at 64%.
Expert:  Lev replied 6 months ago.

That is correct - if you take large distribution that would create large taxable income.

That is why you need to plan distribution wisely and spread over several years.

However - that would be regular tax liability and not penalty as you might think.

When the money were contributed into IRA - they were deferred from tax liability - correct?
So when you eventually takes distribution - that distribution is taxable.

However tax liability is not 64% as you might think - that is not correct interpretation.

See last page

As we see for taxable income not over $189,300 - the marginal tax rate is 28%

State tax rate would be in additional.

However if you already took distribution - you do not have any choice and will need to pay taxes or if you are not able to pay - you would need to negotiate an installment payment plan.

Let me know if you need help to estimate your tax liability.

Customer: replied 6 months ago.
I'm 64 years of age and bought my house with the money I took out of the IRA to live in until I die. If I can't pay my taxes can I let the Feds put a lean on my house so the house pays what I owe when I die?
Expert:  Lev replied 6 months ago.

If you took distribution from IRA - that distribution is taxable.

You would need to prepare your tax return and calculate your actual tax liability.

Next step if you are not able to pay - to negotiate an installment payment plan and be current with all your payments.

If you would not negotiate - the IRS will start collection activity.

Yes - they will put lien on your home and other assets - but that would be very unlikely that your home will be taken away.

But in additional - they will levy on your income - for instance - the IRS is allowed to garnish 15% of your social security benefits.

They may levy on your bank account and other assets.

So - the best course of action is to negotiate.

Customer: replied 6 months ago.
No don't take me wrong, I'm currently in negotiation with the Feds for the 2014 taxes, I pay them $200 a month and and will continue to I just know I will owe them again this year which will add to the 2014 taxes. I guess I want to know is as long as I pay them something in good faith will they not put me in jail? I only get $1900.00 a month and I have a mortgage payment to make if they want this house when I die.
Expert:  Lev replied 6 months ago.

The payment plan should be agreed with the IRS - and they should accept your payments - not just "pay them something in good faith" - there MUST be agreed installment payment plan in place.

ONLY if you have such plan and keep it current - that would prevent IRS from garnishing your income and bank account.

I do not think that you need to worry about the jail - that would be very unusual - but if the IRS starts garnishing your income - that might put you into position that teh money you expect to receive would not be available.

The IRS doesn't want your house - all they want - that your tax liability is paid.

On the other hand - there are penalties and interest charges accumulated on your tax account - and if you pay too little - your tax debt will grow as a snowball.

If you cannot pay in full, you should pay as much as possible to reduce the accrual of interest on your account.

You should consider financing the full payment of your tax liability through loans, such as a home equity loan from a financial institution or a credit card. The interest rate and any applicable fees charged by a bank or credit card company are usually lower than the combination of interest and penalties imposed by the Internal Revenue Code.

Customer: replied 6 months ago.
The Feds have agreed with my $200 Payment per month and like I said I have been paying it. And using credit cards or bank loans that I can't make payments on does not make sense.
I think you have told me everything you know thanks for what you have said.
Expert:  Lev replied 6 months ago.

If the IRS agreed with your proposed $200 per month installment payment - that means - you do have installment payment plan.
In this case - as long as you stay current with that agreed payment plan - you will avoid levies and garnishments - but would not avoid liens on your assets.


A levy is a legal seizure of your property to satisfy a tax debt. Levies are different from liens. A lien is a legal claim against your property to secure payment of your tax debt, while a levy actually takes the property to satisfy the tax debt.

A federal tax lien comes into being when the IRS assesses a tax against you and sends you a bill that you neglect or refuse to pay it. The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

So you may expect to have a federal tax lien - but as long as you are current with your payment plan - you will avoid the levy.

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