IRA Rules

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Question: Hardship withdraw from 401k tax exemptions?

On 11/2010.  I withdrew 15,000.00 from my 401k to put down on a primary residence(first time homebuyer).  My understanding is that IRS has certain tax rule exemption on Hardship withdrawl up to 10,000.00.  Does anybody know the rule to the exemption early withdrawl from a 401k? if so, what is the IRS form that I need to fill out, what is the CA-FTB form that I need to Fill out? what I’m finding out that rule only applies to early withdraw from IRA accounts.

Answer: We had to take 2 hardship withdrawals this year for emergency home repairs.

We were allowed to not have taxes withheld from our disbursement check, and acknowledge they will be done at tax time 2012 for the 2011 filing year.

Ours were smaller, around $3500 each, and we were not informed of any tax exemption…only offered to elect to not have the taxes taken directly out of the disbursement at this time.

I hope any of that helps you, but I’m also answering so I can find this question again, so if someone has info for you about that, then it will help us out, too.

Good luck!

How to invest in Tax Liens with your IRA or 401K IRA Alternative

Question: Can I use an early Roth withdrawal to pay the taxes on the rollover from an IRA into that ROTH?

I will be 70 and a half in 2012, and I rolled over a portion of my IRA into a ROTH mid 2010 to benifit from the 2-year rule that allows me to report the rollover as income split between 2011 and 2011. Now I want to use any of my RMDs from my IRA to pay toward the resulting taxes. THEN, considering the early withdrawal penalty of 10% on the ROTH is less than the Taxes on an IRA, I plan to pay the remaining taxes with withdrawals from the ROTH. Then after 2012, I plan to continue a systematic IRA rollover to that ROTH that when combined with any IRA RMDs keeps my yearly taxable income below that $250,000 level, and paying the taxes this way. Eventually the 10% penalty goes away.

Answer: I really don’t get the aim of this exercise.

You said “considering the early withdrawal penalty of 10% on the ROTH is less than the taxes on an IRA”

But the money you put into the Roth this year is getting taxed in 2011 and 2012, and seeing how you aren’t looking at a long-term growth window (like a 22 year old right out of college) you lose the main benefit – long term tax free growth. On top of that, you pulled money out when you didn’t need to during a down market, meaning you won’t benefit as much from the hopeful rebound in the coming years.

Worse yet, you’ve now increased your taxable income over the next 2 years, which might put you in a higher tax bracket (unless you would be at the highest rate anyway, which would be even worse, because you accelerated income in a higher bracket when you could wait it out, take it as needed, and keep taxes low as possible).

I would probably go talk to some sort of financial adviser and get this whole thing sorted out. You still have time to have the Roth conversion reversed (“recharacterized”) so you won’t get dinged on taxes

Retirement Savings – What is a Roth IRA?

Question: Can I transfer my Rollover IRA account to a different broker?

Recently, I had to transfer my 401K account to a Rollover IRA account at my wife’s employer – an investment bank (IB). According to the IB rules my wife or any immediate family member cannot have any trading or IRA accounts with any other IB or brokerage. Unfortunately, the IB charges extremely high commission on stock transactions. So, I am looking for a way to transfer my money out of my wife’s IB and into a brokerage like Ameritrade. Does anyone know if there is a legal way to do that without getting in trouble with the employer?

Answer: Yes, employees of securities firms generally have to have all accounts under their control (yours is assumed to be) at their own firm. Some firms allow outside accounts with duplicate statements going to them, but they don’t have to. The reason for all this is to scrutinize all activity for inappropriate insider trading and the like.

Self Directed IRA VIDEO :: CUSTODIAN :: Rollover 401k To IRA :: Real Estate IRA Services