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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29951
Experience:  Taxes, Immigration, Labor Relations
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I am 68Yrs old, and want to start withdrawing my 401k. My gross

Customer Question

I am 68Yrs old, and want to start withdrawing my 401k. My gross income last year was 12,000.00 I would like to know which would be better for my taxes to receive more than 120 payments, or less than 120 payments. The dollar amount would not be much
Submitted: 2 years ago.
Category: Tax
Expert:  Lev replied 2 years ago.
Hi and welcome to our site!The issue is that distributions from 401k plan are taxableand large taxable income will result that your social security benefits will be partly taxable.So - assuming that your income $12000 is from social security benefits - these benefits are not taxable.A simple test is - take other taxable income PLUS a half of your social security benefits - if the total is less than $25,000 - none of your cocial security benefits woudl be taxable.Consider following example - assuming - you are single - $12000 from social security benefits - another $12,000 from 401k distributionsthen - none of your social security benefits are taxable - your only taxable income - $12,000 from 401k distributions - because of your standard deduction (increased because you are above 65) and personal exemption ($4000 for 2015) - you will NOT have any income tax liability.
Customer: replied 2 years ago.
I'm sorry, that didn't answer my question. What is better tax wise. more than 120 payments (more than 10 yrs) or less than 120 payments (less than 10 Yrs)
Expert:  Lev replied 2 years ago.
Tax wise - that makes NO difference.But whether that distribution will be taxable or not depends not on number of payments - but on the amount distributed and on your other income.I provided above example when 401k distribution woudl NOT be taxable.If your distribution is larger - it becomes taxable.So - from tax prospective - we need to estimate possible tax liability.Let me know what actual distribution amounts you are planning - and I will verify your possible tax liability.
Customer: replied 2 years ago.
That's OK, if either makes no difference, than that's fine. Thank You
Expert:  Lev replied 2 years ago.
The difference is NOT based on the number of payments - but on your income in each particular year.
If your taxable income is low - you might want to have distributions in control - and not to trigger the situation when your social security benefits become taxable.
But as long as your total taxable income (after all allowed deductions) woudl be zero - you would not pay any additional tax of distributions.
That also affects your withholding - the administrator might ask you to file form W4P and specify your withholding - so if none would be taxable - you may want to avoid withholding so - no need to wait till the tax filing to get the money back.
So - in your situation - it might be important to know what tax liability to expect (if any).
Let me know if you need any help.
I am here to help you with all tax related issues.