Real loopholes to obtain tax free distributions from your retirement accounts?
Retirement planning is an important facet to your overall portfolio strategy. Without proper tax & distribution information, you could over pay or be penalized on your actions. If you’d like to take advantage of these loopholes, seek a professional who has experience in qualified plans. Thanks for stopping in and enjoy, Megan.
Amanda Han’s Keystone Korner
Last week, we began a discussion regarding distributions from retirement accounts. Did you know that if you take a distribution from your Solo (k), the taxable portion is subject to mandatory 20% federal income tax withholding? Furthermore, you as the taxpayer do not have the option of “electing out” of the withholding requirements. To add insult to injury, often times there are also state tax withholding rules as well. So without proper planning, you can lose up to 30% of your distribution in withholding taxes alone. In essence, you do not even see that portion of the distribution because it is already taken out as a withholding before you ever lay hands on that money.
Having said that, there are a couple ways to get around this 20% withholding tax: 1) the distribution is considered part of the required minimum distribution taken out by an individual who has reached the age of 70½ or 2) you can directly roll the distributed amounts over to another qualified plan or IRA or 3) the taxpayer can demonstrate the distribution was taken out as a result of hardship. Of the three ways to avoid the 20% withholding tax, you can probably already tell that the second two are areas where you can plan ahead to utilize the exclusions while getting a distribution from your account. Seek out a qualified tax advisor who can assist you with planning and implementation if you are looking for ways to obtain tax or withholding free distribution from your retirement accounts.
Written 2009 by Amanda Y. Han, CPA
KEYSTONE CPA, INC.
Maximizing Profits & Increasing Wealth
Thu, Nov 5, 2009
Financial Planning, Tax Tips