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Huge tax bill
Old 03-19-2018, 02:41 PM   #1
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Huge tax bill

Well I made a rookie mistake. After saving for such a long time wanted to reward ourselves with some toys. The market had been good so took money out of the retirement account to pay cash for the toys. Needless to say the 20% federal withholding didn't quite cover it. Don't have anymore toys on the list but will know better next time.
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Old 03-19-2018, 02:55 PM   #2
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How big?
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Old 03-19-2018, 02:56 PM   #3
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Well I made a rookie mistake. After saving for such a long time wanted to reward ourselves with some toys. The market had been good so took money out of the retirement account to pay cash for the toys. Needless to say the 20% federal withholding didn't quite cover it. Don't have anymore toys on the list but will know better next time.
Kudos for posting about your experience. Most would not have the courage to own up to how painful the tax bill can be for withdrawing from their IRA prior to 59.5.

Hopefully your experience will save others from suffering similar financial pain.
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Old 03-19-2018, 03:01 PM   #4
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It was not a penalty I can access my money whenever I want. The problem was between pension, wife's pay, my part time job and the withdrawals it put us into the 33% tax bracket.
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Old 03-19-2018, 03:02 PM   #5
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It was not a penalty I can access my money whenever I want. The problem was between pension, wife's pay, my part time job and the withdrawals it put us into the 33% tax bracket.
That would be penalty enough for me!
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Old 03-19-2018, 03:02 PM   #6
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Roughly $18,000
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Old 03-19-2018, 03:05 PM   #7
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Well I made a rookie mistake. After saving for such a long time wanted to reward ourselves with some toys. The market had been good so took money out of the retirement account to pay cash for the toys. Needless to say the 20% federal withholding didn't quite cover it. Don't have anymore toys on the list but will know better next time.
So in retrospect, which toys would you have foregone in order not to make this mistake?
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Old 03-19-2018, 03:08 PM   #8
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I'm trying to make sense of the OP... even if one had ~$170k of all ordinary income then the tax would be less than 20% of income after deductions and exclusions (for a couple) .... unless the OP was in a high tax bracket to begin with before the withdrawals or was subject to 10% penalty. Must be some really nice toys.

But nonetheless a good lesson to do some rough calculations of taxes before doing large withdrawals.

ETA: I missed the post by the OP that they had other income that put them in the 33% bracket.... ouch! Lesson learned I guess.
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Old 03-19-2018, 03:37 PM   #9
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I'm trying to make sense of the OP... even if one had ~$170k of all ordinary income then the tax would be less than 20% of income after deductions and exclusions (for a couple) .... unless the OP was in a high tax bracket to begin with before the withdrawals or was subject to 10% penalty. Must be some really nice toys.

But nonetheless a good lesson to do some rough calculations of taxes before doing large withdrawals.
Tax caster is your friend for determining how withdrawals will affect your tax brkt.

https://turbotax.intuit.com/tax-tool...ors/taxcaster/

I do taxes, and many people make the same mistake. In some cases, the withdrawal takes them over the ACA cliff and it really gets ugly.

Sorry it happened to the OP, but sounds like he learned a lesson from it.
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Old 03-19-2018, 03:50 PM   #10
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Taxcaster is good, but the What-If worksheet in TT is good as well and allows easy comparison between different years or different scenarios.
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Old 03-19-2018, 03:58 PM   #11
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I owe 14 grand. Six and a half to the Feds and seven and a half to CA.
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Old 03-19-2018, 04:04 PM   #12
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I owe 14 grand. Six and a half to the Feds and seven and a half to CA.
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Old 03-19-2018, 04:07 PM   #13
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much less tax if you pull the toy money from taxable or roth accounts.
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Old 03-19-2018, 05:14 PM   #14
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Well I made a rookie mistake. After saving for such a long time wanted to reward ourselves with some toys. The market had been good so took money out of the retirement account to pay cash for the toys. Needless to say the 20% federal withholding didn't quite cover it. Don't have anymore toys on the list but will know better next time.
OP, I will make you feel better (in terms of I feel your pain). I haven't done my 2017 taxes yet, but have a $149,000 capital gain from a single security. My largest holding was the subject of a mostly cash takeover. Think that's gonna hurt when I do my taxes?
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Old 03-19-2018, 05:44 PM   #15
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I am expecting a 6 figure tax bill. And maybe only 2/3 of it has been paid in estimated taxes.

So that's going to be a big hit come April.

But it's not a surprise. I deliberately sold some long-held assets last year.
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Old 03-19-2018, 05:51 PM   #16
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I owe 14 grand. Six and a half to the Feds and seven and a half to CA.
That's one way to Blow More Dough!
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Old 03-19-2018, 06:30 PM   #17
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Well I made a rookie mistake. After saving for such a long time wanted to reward ourselves with some toys. The market had been good so took money out of the retirement account to pay cash for the toys. Needless to say the 20% federal withholding didn't quite cover it. Don't have anymore toys on the list but will know better next time.
Be glad: The market is up. Just think how painful the experience would have been if the market was down!
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Old 03-19-2018, 06:46 PM   #18
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I thought I got hit hard at 3k
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Old 03-19-2018, 06:57 PM   #19
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OP, I will make you feel better (in terms of I feel your pain). I haven't done my 2017 taxes yet, but have a $149,000 capital gain from a single security. My largest holding was the subject of a mostly cash takeover. Think that's gonna hurt when I do my taxes?
I have several of those monster cap gains stocks, and I've pretty well decided they are going into the will.
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Old 03-19-2018, 07:09 PM   #20
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I have several of those monster cap gains stocks, and I've pretty well decided they are going into the will.
My plan too but sometimes the plans get upset by a taxable spinoff/merger that derails the plan.
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