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Howdy all, from Texas!
Old 10-18-2012, 12:54 PM   #1
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Howdy all, from Texas!

I don't really talk like that, but for some reason people think I do because I live in Dallas . Hi, everyone. I am a 41 year old paramedic and I recently separated from my employer of 17 years. I received this notice in the mail about an early pension plan payout and I have a few questions that you may be able to answer, if you don't mind?

Background: 35k in employer funded pension, separated from employer and unemployed for 4 months. Gainfully employed now but only part time, also a student in nursing school. Trying to get my life back together and pay bills that have accrued since job loss. Already liquidated small 403b contributions to pay for necessities.

I have the option to roll my money over into another 401 account, take a payout of the amount, or leave it in it's current account and take it when I retire at normal retirement age.

My questions are these: If I roll over my 34K into an IRA account, what will I be taxed if I have to access it to pay for things?

If I take the full amount of the payout, could that count as a hardship disbursement if I was unemployed for part of the year?

I know the disbursements for me are taxed at 25% federal, no state, and 10% early withdrawal, but since I was unemployed for that long (resulting in approximately $15K net salary loss), could I claim hardship? What exactly is a hardship disbursement?

Also, any idea of what kind of a tax hit I would take? I have incurred no tax debt the last several years: family of four, two children, wife doesn't work due to medical issues.

I know the disbursement would be counted as income, the disbursement ...according to my 35% tax calculations, would be about $22K. Does it make any sense to take a full payout? What if I rolled it into an IRA and accessed only part of the money, would that make any more sense?


I'm so confused, and I appreciate any help you all could provide. Thank you in advance.
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Old 10-18-2012, 03:23 PM   #2
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If I roll over my 34K into an IRA account, what will I be taxed if I have to access it to pay for things?
- Yes income taxes will be due upon withdrawal depending on your total income level for the year.
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Old 10-18-2012, 03:40 PM   #3
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Tax Topics - Topic 558 Tax on Early Distributions from Retirement Plans, Other Than IRAs

There are no hardship exemptions from the penalty for early withdrawal. The list of allowable exemptions is in the link. You will pay 10% plus your federal rate. If your income dropped in the year you take the withdrawal the tax bite might be lower. If you don't need all of it in one year, don't withdraw all of it.

Quote:
Also, any idea of what kind of a tax hit I would take? I have incurred no tax debt the last several years: family of four, two children, wife doesn't work due to medical issues.

It sounds like you might be in 0% tax bracket, in which case you would only owe the penalty.

Also look at refundable child tax credits and earned income credits that you may qualify for if you have some, but low income. And becareful not to disqualify yourself from these credits if you don't have to ( by taking too large a disbursement from the IRA)
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Old 10-18-2012, 03:43 PM   #4
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There is also an education credit that you might qualify for depending on how you are funding your education.
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Old 10-19-2012, 11:58 PM   #5
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If it were me, I would play it safe & roll it into an IRA with one of the big investment companies like Vanguard, Fidelity, or TRowe Price. Don't touch it till your 59.5 or later. If U take it now taxes and PENALITES will eat up the money. Do a direct rollover (your company to the new financial institution) Good luck in nursing school.
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Old 10-20-2012, 04:41 PM   #6
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Originally Posted by sundance
If it were me, I would play it safe & roll it into an IRA with one of the big investment companies like Vanguard, Fidelity, or TRowe Price. Don't touch it till your 59.5 or later. If U take it now taxes and PENALITES will eat up the money. Do a direct rollover (your company to the new financial institution) Good luck in nursing school.
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Howdy back at ya! Texan here, also. I don't talk like that either, but I do say Y'all and Fixin' to.
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Old 10-20-2012, 07:42 PM   #7
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My questions are these: If I roll over my 34K into an IRA account, what will I be taxed if I have to access it to pay for things?

Howdy back at ya. Yes I actually say howdy to folks several times a day. Just a habit I guess. And I'm not even an Aggie!

Why not just roll it over to an IRA at Vanguard? You will have more control and many more investment options? A rollover is not taxable as long as you do not touch it.
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