So annoying that I have to give an interest free loan to the gov just because of the weird "supplemental" rate. I guess the IRA won't find it suspicious if its common. My taxes have always been pretty close to being over/under.
From 401k Resource Guide Plan Participants General Distribution Rules | Internal Revenue Service:At one time, my 401(k) administrator required 20% withholding on all withdrawals. I think that's been amended. BUT, that led to a nearly $10K refund once. Not so much any more, though.
Any taxable distribution paid to you is subject to mandatory withholding of 20%, even if you intend to roll the distribution over later. If the distribution is rolled over, and you want to defer tax on the entire taxable portion, you will have to add funds from other sources equal to the amount withheld. You can choose to have your 401(k) plan transfer a distribution directly to another eligible plan or to an IRA. Under this option, no taxes are withheld.
So annoying that I have to give an interest free loan to the gov just because of the weird "supplemental" rate. I guess the IRA won't find it suspicious if its common. My taxes have always been pretty close to being over/under.
Actually there is, for withholding, and that can lead to high refunds.I think (and I think others are saying the same), that there is no 'supplemental rate".
We paid based on safe harbor rules of 1.1 times last year's liability.
This year we had unexpectedly low income in some areas and are getting an $8K refund.
Means our safe harbor amount for 2023 will be pretty low.
Gonna find out this morning. We're soon heading to the CPA to sign our taxes and see what's what. I'm thinking we'll have a significant refund since we doubled up on charities again. YMMV
Wow, I just hit 100 posts in 10 years of reading ER.org. Hope you all can keep up with me
There is a supplemental tax rate applied to PTO when paid out at termination, just the same as it is applied to other bonus payments. It is currently 22%, a few years ago it was 25%. It all comes out in the wash when you do your taxes, it is just withholding and if your actual tax rate is less than 22% you get it back. I believe it is done so that employees who get big lump sum payments don’t end up not having enough to pay the IRS at the end of the year long after the lump sum is spent.
A bonus is always a welcome bump in pay, but it’s taxed differently from regular income. Instead of adding it to your ordinary income and taxing it at your top marginal tax rate, the IRS considers bonuses to be “supplemental wages” and levies a flat 22 percent federal withholding rate.
[-]OK, I'm only doing this to push you to post #102 , but...
Are you sure that is really a 'supplemental tax rate'? Or is it just the rate that would apply if it were part of (on top of) their annual income, regardless of the source?
I don't know, but I've never heard of such a thing.[/-]
UPDATE: Woooops, never mind, conserve that post count:
https://www.bankrate.com/taxes/how-bonuses-are-taxed/
So that is a new one on me. Learn something everyday? Well, today I did.
Further edit: Now I'm curious why 22%? There are , 24%, 32%, 35% and 37% brackets. Seems they'd go to your next highest bracket? This makes no sense to me.
-ERD50
Wow, I just hit 100 posts in 10 years of reading ER.org. Hope you all can keep up with me
Wow!
Big charitable deductions will reduce income taxes a lot.
Do you do Qualified Charitable Distributions directly? Looks like that’s limited to IRAs.
Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.We looked into that and it seemed more trouble than it was worth. We have no tIRAs (all converted to Roth) so would need to create a tIRA and roll 401(k) money into it first. I guess I'm too lazy to deal with it.
I did once donate some appreciated stock. What a nightmare. The charity's broker got a big chunk of the money. Never again unless I know that the broker's cut is reasonable. YMMV
Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.
There may be some major pros of rolling your 401K in to an IRA, but you would have to evaluate it. QCDs after age 70 1/2 would be one of them.
Donating appreciated stock to a DAF (donor advised fund) works very well, clean, no broker’s fee. Then you can donate to the charity from the DAF when you are ready. Vanguard and Fidelity offer low cost DAFs.
I LOVE my Fidelity DAF and wanted to add a big advantage I've posted before: you can make the donation anonymous. So, you have a legitimate, documented tax deduction when it goes to the DAF but Fidelity (or other firms) send the charity a check for the amount you specify and will leave your name off of it if you request that. It's saved me a bundle of follow-up solicitations.