Coronavirus Pension Plan Distributions Options
What Are The Options For Coronavirus Pension Plan Distributions
When tax time comes around, are you being reactive or proactive? Do you find yourself swimming in a sea of questions? Like, is it better to do my tax return cheaply? How do I know if I’m doing them the right way? Welcome to The Tax Answers Advisor with Marcelino Dodge. Today we’ll answer these questions and many more, sharpen your pencils and take some notes. Now here is your host, Marcelino Dodge.
Marcelino: Hello, hello, welcome to the tax answers advisor, this is the one and only Marcelino Dodge and I know there’s many people are grateful, there is only one Marcelino Dodge or certainly appreciate you listening today to show number 22 of The Tax Answers Advisor. It doesn’t seem like a lot but, you know, it just keeps growing little by little every week certainly thank all listening, around the world here not just in the US but in areas like China, Colombia, Ireland and so on, listening to this podcast, it means a lot that we have such a worldwide reach.
Also we want to invite you, you can always contact me directly if any questions, concerns, also for our services there www.cashtracksfinancial.com, available via email during the live program here firstname.lastname@example.org or if you want to make contact any time. You can also call the office directly which is 844-394-4287, or of course you can also send a message through our Facebook page.
Very exciting to be able to be here with you all today we have a lot going on with the Congress still working on the $1.9 trillion relief bill that has a lot of tax provisions and in particular some that affect the child tax credit, but we’ll talk about those more at a later time as soon as the legislation actually gets signed by the President, which we don’t know when that’ll be right now, we just know the Senate’s working on it.
Anyway, just want to talk to you a little bit about the employee retention credit that’s coming up for employers, available for paid wages after March 12th of 2020, but before January 1st of 2021. Now they’ve made some changes in that which has been really good changes, because if you received a PPP loan you can now claim the credit. You just have to use a different time period than you would then you would for the PPP loan but it’s still nice provision in this.
You’re certainly eligible for this, when it comes to full or partial suspension of operations due to the COVID-19 pandemic or if your receipts decline, and they’ve expanded, of course available into 2021. Now I forgot to mention just a moment ago that of course, it shows going to focus on retirement plan distributions, related to COVID-19 and then even some retirement plan distributions. In general, how those need to be treated.
And as we go through the show today and as we have in the intro there I always caution people. When I talked to them, they’re always saying well I’m looking for the best price to do my tax return, well you know that. Okay, that’s fine. You want a good price, but yet remember the old adage, you get what you pay for. And certainly I’ve seen that a lot over the years you definitely do get what you pay for. You don’t get copies of your tax return, you don’t get representation, you don’t have a person there. You don’t have a person to consult with, which is really to me what a tax preparer is now and really needs to be is, is more of a help, a year-round assistance to help you be proactive with your taxes.
So as we go through today’s program it’s going to really stress as we talk about these retirement plan distributions, especially in relation to COVID-19. How important it is to have that partner? And I’ve talked about that in a previous podcast don’t just have a tax preparer have someone that’s helping you as a financial partner to be there for you, year-round, not just seasonally. Now another area I want to just remind ones is that sometimes, and some people I have some that I’m working with this year that haven’t received their 1099s yet perhaps it’s a 1099R, or perhaps you’re still missing a W-2 from an employer.
Right now, at least for a little bit, you need to make sure you contact that employer or that pension plan area so that you can get the form and don’t reissue them at least if they’re respectable they’ll reissue them out and get them to you as soon as they can because sometimes they mail around they do get lost in the mail or if you’re not exactly a computer savvy person, because a lot of these are available online, you still may need to mail them and usually they’ll, they’ll pretty good all the reputable ones will mail out and I’ve had pretty good success with that.
Now sometimes we do know is that you also receive a W-2 or a 1099 that has wrong information on it. And you know that because you perhaps compare it with your pay stub and there’s just something flagrantly wrong, or maybe perhaps because have we seen the amount of fraud with unemployment. Maybe you have a 1099 G that is wrong because of unemployment fraud. Well, you need to go ahead and contact once again the agency, the business that issued out those forms to get those corrected.
And if you know what they’re correct information is you can go ahead and file, but it is recommended that you get them corrected that way when the IRS does it’s matching later on down the year that what you reported and what they have matches up now. If you don’t have the correct W-2, or if you’re still waiting for your W-2 but you got a good idea of what those numbers would be, while you can file a substitute, W-2 and we do this on occasion but we try to always make sure the client that we work with has the proper form but yet, in the end if it comes down to it, we can file a substitute that way you can get your taxes filed and get done so just keep that in mind as well.
Also if you’re a resident of Oklahoma or Texas, it’s been reemphasized that now you have until June 15th to file. Of course, there is a movement and there’s encouragement trying to change that from April 15th to June 15th. Or maybe later for everybody but we don’t know what’s going to happen with that yet, there are still millions of tax returns that have not even been processed by the IRS. Those are 2020, 2019 tax returns because of the shutdown. So there’s, there’s debate there’s encouragement.
If anything happens, we’ll be sure to let you know on this program, but until then right now for everybody else, pretty much still April 15th your tax return is due. That’s individual tax returns now, also want to make sure and mention that if you have a Partnership, an LLC, a multi-person LLC, an S-Corporation, those tax returns are coming up due here real quick on March 15th which is the, if you have a calendar year which most are on a calendar year that that’s coming up here March 15th. So just keep that in mind.
And that’s your year to year, of course you can always file extension which those IRS doesn’t charge for those, you can get those done which then gives you until September 15th to get it done if you really need to do something of course that we can help you with. Now we know that 2020 was a year unlike any other year. And because of that, many people because of perhaps shutdowns in their states or in their cities, decline in business, government saying, “You need to close your business for the protection of individuals, unless you’re considered what some just deemed as essential.”
Which that’s not getting into that discussion, but we’re just going to note that there were many that were affected by it, some had reduced hours, some had a lot of other circumstances happen. And in many cases, what this led to was them taking money out of their retirement plans. Now, this could be either their 401K at work, it could be a 457 plan, it could be just their traditional IRA, could be any number of areas. Now under any other regular year, if you take these distributions before you turn age 59 1/2.
Usually there is a 10% penalty or early withdrawal penalty for taking out that distribution. If there’s no qualified exemption and there’s some exceptions that that some may qualify for depending on circumstances we’re not going to really talk about those exceptions today, unless you just happen to come up but anyway we’re just going to kind of focus on distributions that were taken primarily due to COVID-19.
There were provisions in the Cares Act, that provided retirement plan really, because it was noted that many people were going to be off work, and they needed to live so what do they do they accessed their retirement plans. Now, the COVID-19 definitely had you had to be impacted by COVID-19 to actually do it, because we do know there were several workers who and several who actually never stopped working because of the nature of their employment, or just for any number of reasons or instead of working at the office, they were working at home. And so essentially, they still kept working. So there’s, there were several that were hurt, and yet there were several were still working. Now, we see that with these many impacted, the federal government had legislation that allowed for penalty free withdrawals from qualified plans. Now, and that is limited, up to $100,000.
Now what we do appreciate about that is that many could do that and some perhaps even took out more than $100,000, but at least that first 100,000 wouldn’t be free of the 10% penalty and you’d have to be a qualified. You just can’t be someone who is saying, oh I’m working good but you know I want to take money out of my retirement plan, take advantage of that COVID-19 waiver of the penalty. Well, you have to be a qualified individual for that we’re gonna talk about what exactly these qualifications are, in just a moment here.
And also, when you do when you do take this, it’s reported there’s a new form they came out with at 8915 Dashi, where you do this, reporting, but we’re going to touch a little bit more, and answer this question about exactly, “What is a Coronavirus related distribution, what is it qualified person for this distribution?” Well first of all, as we look at this, this distribution had to be taken between January 1st 2020 and December 31st 2020.
So that’s the time period that you had to take basically the calendar year 2020 you had to take the distribution during that year. And it had to be taken by a qualified individual, which then leads us though, leaves us the question. Well, what is a qualified individual? Well, it’s pretty plain in the rules how it’s stated who this who qualified individuals are. There ones who are perhaps been diagnosed with the COVID by a CDC approved test.
And certainly those are out there and especially from March on, they were really working on ramping up testing and making those available, so they had to be diagnosed individually with that that was one qualification for it. This, another one is perhaps your spouse or your dependent tested positive for it. So then once again that family was affected. And then what leads us into that as well as the fact that if a spouse or a dependent was tested positive, we know what often that lead to often that would lead to like the whole family, being quarantined for a period of time.
Usually 10 days to weeks is just really dependent on what was happening at the time and so, and we see being quarantined of course you’d be unable to work. Now of course if you were working from home. You really didn’t get a quarantine but you still may qualify for this, because you had a family member that tested positive. So, it’s, it’s kind of just, there’s a few little kind of gray areas in there some possibilities for ones, but yet if you were able to take or enable not to take this distribution then certainly it was good thing.
So, adverse financial conditions resulting perhaps you were quarantined and as a result of being in quarantine you experience some type of financial hardship, not being able to go to work if you were working outside of the home. Now, also, of course, this relates to if you had a type of job where you could not work at home but because of mandates, within a state or a city, or just general drop off of business.
You were furloughed, laid off, or your hours got cut back which we know for a lot of places, especially like restaurants that were limited to carry out only in many states, while they had ours cut back for many individuals in those that work in those places because they didn’t have inside dining in many places or when they did get some inside dining they had reduced inside dining. So those hours were reduced for some individuals.
And that’s just one example and there’s several others, of where individuals were perhaps had these challenges, while you would have an adverse financial consequence as a result. Now of course some of these individuals may also have qualified for the unemployment payments as well. But yet, you would still qualify for this distribution, be a qualified individual for this distribution. As a result of this, so it’s almost like a two further that you can get.
Another area that could help that can have you experienced financial consequences, especially adverse ones, is lack of child care, perhaps whoever your childcare provider was you’re heading off to your work and your childcare provider was there, well had been there for you. But then, these COVID-19 came along, and the childcare provider was unable to provide your services. So that’s also with schools being closed in many areas, you perhaps weren’t able to go to work, perhaps you were in a job that you’re able to go to work or go to the office or go to wherever you worked maybe a grocery store, or even a media company for that matter.
All these other ones that that had stayed open for a long time but because of the fact that you had to take care of your child which, actually, I commend you for taking care of your child. But because of this lack of childcare, you had to not be able to work. You had to just sit back, you had to take care of your child, work at home or whatever you had a change of activity, as a result of COVID-19. Would also make you a qualified individual for purposes of Coronavirus related distribution.
And then if you are a business owner, sole-proprietor or maybe owner of a small S-Corporation, or a partnership, or a multi-person LLC. And then as a result of Coronavirus your hours were reduced or perhaps even you had to close your business. As a result of once again various mandates throughout states and cities throughout the year. It would also make you a qualified individual here.
And then of course, as it states there’s other factors as determined by the Secretary of Treasury which these can be very broad. It’s never like anything else is determined by the government, like, who really knows what that means. So those are helps us to see what a qualified individual is for these, which is, once again, as I look at this and read this and see this, this is reasons why it’s important to have someone to help you to walk through these things, a good tax advisor or tax preparation person who can really look at this stuff and say, “This is what’s good for you!”
And even be able to talk to them during this time period, there so what we’re gonna do is I’m gonna take a couple minute break here. And then we’ll come back and talk more about qualified individuals and then of course, the included retirement plans and even more details on the importance here. But, we’re going to see in just a couple of moments here on The Tax Answers Advisor with Marcelino Dodge on the Voice America Business Channel.
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Are you wanting to grow wealth faster, save time and build a nest egg? Hire a tax pro who makes you money and does more than just file your tax return? Marcelino Dodge of Cash Tracks Financial identifies your key numbers, works year-round, improve your numbers, keeps you compliant and helps you achieve goals faster. Call Marcelino Dodge today, 719-336-8739 to schedule your free tax strategy review. Call 336-8739 or visit cashtracksfinancial.com.
Many people want to build wealth or grow their business faster, but do not know what specific numbers to look at that actually helped build monthly cash flow. Hire a tax pro who makes you money and does more than just filing your tax return? Marcelino Dodge of Cash Tracks Financial identifies your key numbers, works year-round to improve your numbers, keeps you compliant and helps you achieve goals faster. Schedule your free tax strategy review by calling 719-336-8739 or visit cashtracksfinancial.com.
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This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to email@example.com. Now back to The Tax Answers Advisor.
Marcelino: Welcome back to The Tax Answers Advisor, this is Marcelin Dodge. I really appreciate you listening to today’s program as we’re looking at retirement plan distributions relation to the COVID-19 pandemic and helping you to really see that there is waivers to tax penalties for early withdrawals and that the importance of using a properly prepared and trained tax advisor to be able to help you to walk on through these changes.
And there could be even more coming with the COVID Relief Bill, the new one that they’re working on right now in the Senate was all that develops but as we’re talking about qualified individuals for a COVID-19 distribution. One of the areas I want to make is that really stresses the importance of talking to a tax person, and having a tax advisor that you can work with, is when it comes to distributions such as this, and my basic recommendation is before you do anything with a retirement plan anything, whether it be your IRA, your 401k wherever it is you’re working.
If you have every employer sponsored plan, you need to talk to your tax person, your tax advisor, because they can help guide you through the possibilities. Now one of the areas that relate, I’m going to relate this because this is something I thought about, in talking to a client today. Well, this year so far that another area once have, to be very careful on it sounds like a good idea, but it isn’t always a good idea.
And this is going to come back to COVID related here in just a moment, is a fact, if you take, if you took a loan on your 401k, which you can do on a 401k and some retirement plans, you start paying it back. Well, I’m not certain if you took a loan on that then leave that employer especially if you turn around and leave the employer like this year, like in 2021. That loan because it was a loan, you may not qualify for this waiver of this 10% penalty.
Now, I do know is an interesting part about this that instead of taking a loan, like say you had 25,000 loan, instead of the loan. You took 25,000. Now, and also tested positive for COVID. Then of course you would get, you can get this, this waiver of this penalty. So it’s hard to really weigh this but yet, it helps me to recognize and helps me to share with you the fact the importance of before you make any moves whether you’d get a loan on your 401k or looking at making a distribution, looking to pay some bills.
It is vital. You come to talk, talk to a tax advisor like myself so that we can help you to really make the best decision because the biggest mistake I see people make when it comes to their retirement plans, is taking all the money out. But, we’ll talk about that a little bit more but we want to definitely hit on the fact that, depending on what you have done. You may not qualify for this. This distribution exception as far as the penalty so it says something, good point. Keep in mind the importance of speaking to someone who can really help you to navigate through these troublesome waters. Now in helping to understand a Coronavirus related distribution, we also need to of course keep in mind the various retirement plans, that would also be available that you can withdraw from to be able to avoid the 10% penalty.
Now these of course include IRAs, Annuities, Employer Sponsored Retirement Plans. I can mention to 401 K’s, then other plans that you may have through an employer, such as 403 B’s, Tax Sheltered Annuities forces, 457 plans and even money purchase plans. All in these are various types that would qualify to get this exception there. Yet, if you take this exemption, or if you have taken this distribution from your retirement plan.
Now we’re getting into what we’re thinking about the reporting part of it, which is where you’ve, you’ve taken it out, you’ve had the qualifications being quarantined, laid off, a diagnosis of family member with the diagnose, one of those adverse circumstances and yet a qualified plan that you’re taking care about. But when you took it out the plan sponsor, whoever that is, may not treat it exactly as a COVID related distribution, because there’s little codes that they use on the 1099 R’s when they do the reporting to the IRS.
And then whatever that code is, then also helps to determine. Are you going to be subject to a 10% penalty? A good area that is within this law that makes helps make so much sense here, is that regardless of what they code because a code that I see many times on these early distributions is what’s known as a code one. Which is early withdraw, no exceptions. You pay the 10% tax penalty. So even if you have a 1099 R, that is coded that way. This is where having a good tax professional like myself, educated in this to help you to do it.
You don’t want to be relying on just software that’s where many people just get their, get make the mistake is relying on software or these tax experts that are going with this free software. So, you just got to be very careful with that and really have someone that you can visit with via teleconferencing or, or in person, whatever you’re most comfortable with. That’s how we would consult with you on such matters and even on your tax return.
So this distribution you can treat exactly how, as a Coronavirus regardless of how the plan does it now there’s ways that are this, this are done within the tax return, so that you do not pay the 10% penalty, and it involves some various forms that you have to put waivers on. Also with this penalty waiver that you’re getting in the way that the law was put in which is really nice provision, so say, if you took out $90,000 out of your retirement plan.
Under previous rules and laws, you’d have to take that whole 90,000 in whatever year that you took it out. Now though, under the provisions of the Cares Act. These distributions you actually would take over a three-year period. So if you take the 90,000 out, instead of reporting all 90,000 in this year in for 2020, you would report 30,000 in 2020, 30,000 2021, 30,000 in 2022. Now the advantage of that.
The reason why that is a very good thing is that you can avoid jumping a tax bracket, instead of going say if you’re in the 12% tax bracket and you take out this 90,000 from your retirement plan that could boost you up into the 22% tax bracket. So, it’s almost like you’re creating a penalty on yourself if you did that whole 90,000 a year which you could. Actually, a person can elect to instead of spreading this withdrawal out over three years.
You can take it all in year one, which, depending on the amount you took this is where my individual consultation with individuals. I look at where your whole situation and if it works out to take whatever your distribution amounted for the whole year, then we can do it otherwise. The three year would probably be a good option in many cases depending how much was taken out of the plan.
So you can choose to report in either way and that’s where someone who really looks at your situation as an individual, looks at the numbers, sits and consults with you and says, “This is the option you have.” And this is the result of the option which is what I sit down and do as I speak to people, and call them and talk to them and just try to explain exactly what the consequences are of going a certain direction.
Especially, the tax amounts because my whole goal in talking to people and even sharing this information is to make sure you pay as little tax as possible, pay what you owe, but no more. Or the other part is don’t create more tax than what you actually need to, because that’s what helps to create well, is to not pay more tax than you need to. Instead of paying more tax and say, taking your money and sending it off to the IRS within the law, use what’s in the law to help you to be more successful and to help build up wealth that way.
These of course are then reported on your individual tax return these distributions. So either way, whether you do paid over the reported over the three years or report it all in 2020, you just report them on your individual tax return. Also once again as I mentioned, the 1099 R, that you receive for these distributions because that’s what you’ll receive and you take a distribution out whether you do, whether you move money out or over to a new plan or you just take it out and cash it out, whatever the case may be, it can be coded wrong.
Which is in why tax professional like myself needs to go in there, look at a very carefully and coded correctly so that with the Coronavirus distribution that you have. You get it correct and you do not pay that 10% penalty. And right now we’re at the beginning or kind of in the middle of tax season kind of an unusual tax season. Many people are not in too big of a rush to get it done. Some people are there’s always different groups of people have different goals in their taxes but yet still choosing your tax preparer wisely is absolutely essential as what, this is another example of why that is so true.
Because of the tax preparer doesn’t put that in correctly, or if you’re just relying on the do-it-yourself software to do that for you could be trouble. You could end up paying more tax than you really need to so what we want to do is just encourage you to do, to really use a tax professional to help get these distributions absolutely correct. Now something that I thought was very nifty about this COVID-19 legislation they put out in regards to distributions from qualified retirement plans, is the ability for you.
If you’re able to, to actually take the funds and put them back into a qualified retirement plan. And you have three years to do that. So to make that payment into there so that you don’t pay tax on that money. You’ve already got the ability to not have a tax penalty, a 10% tax penalty but how about, not even having to pay the tax. That is just a wonderful actually very nice provision in this, where you’ve taken the money out. So you’ve taken the 90,000 out of your retirement plan. You have three years to repay that back to the plan.
Now, you don’t necessarily have to pay it all back, but you could pay some of it back in the year that you pay some of it back. That reduces your taxable amount, especially if you’re taking the plan amount, like the 90,000 I mentioned to see if you take 30,000 2021 on the 2020 tax return, then you got 30,000 in it for 2021 and 30,000 for 2022. While you can actually reduce those amounts that you’re having to pay back without having to pay the tax, I’m saying reduce the amounts that you’re having to pay, pay tax on because you’re putting money back in.
It’s really nifty how they did this because what happens is that it’s treated as a rollover distribution. When you take the money and you roll it back into a retirement plan. It’s like a transfer for example, when you’re rolling money from like a 401k to your individual IRA, it’s a trustee to trustee transfer when they send it from the business plan to your individual plan or if you’re moving money in an IRA from one bank to bank one over the bank to adjust it’s treated like that even though that’s not actually what happened.
But that’s how they’re looking at it that you’re doing it within the 60 days and you’re really, really trying to reduce your tax there. So, if you’re able to put money back in it’s certainly a good idea to do because once again you won’t have to pay the tax on that money. Even though you actually had the money for a little bit, but then you turn around and you repaid back into it. A fine wonderful provision as well as with this is that when you’re re contributing back into your retirement plan, your 401k or your traditional IRA. What you put back in, is not going to be counted toward the annual limits, say because you have like a $6,000 limit on what you contribute to your IRA or 7,000 if you’re 50-year old over.
And you want to put 6,000 back in, for say 2020 or 2021. Well, you can put that 6,000 in, or put it back into there and then you can turn around and put 6,000 in for 2021 as well, because you’re not going to be limited because you’re repaying what you already took out so you’re not going to pay tax on that amount, then you’re putting another 6,000 in to be your contribution for say 2021.
So you’re, it’s a very nice provision to help you to get to get your retirement plan back caught up and of course as I mentioned that must be paid to the retirement qualified retirement plan which is of course like your traditional IRA, or back to your 401k or 457 or whatever plan that you took it out of it needs to be something of that nature. I really appreciate this part of this, this is great is that if you took money out of your 401k as a Coronavirus distribution, to help you out through the difficult times.
And you want to repay some of that, a beauty of this is that over the three-year period you are not required to put that money back into that 401k even though you took it out there. You’re not required to put it back into that 401k. So, if you decide okay well I want to re contribute back to my qualified retirement plan, but I don’t want to put it back into my 401k. I want to put it into my individual IRA, you can do that.
So you’re not locked in there, it makes it really, really nice for you to be able to recover and gives you some good choices as to what you are able to do there. So yes, we definitely recommend that you keep these points in mind and once again your tax professional. That’s why we’re here is to help you to understand these areas, not just for the tax year 2020. But as well as going forward over the next three years if we’re dealing with these types of contribution well, re-contributions and dealing with how we roll or actually pay the tax on these distributions over three years.
If that’s what you so desire to do, which could be a good thing because if you’re planning on repaying, it’s good to wait that out because if you do decide to repay and you’ve already filed we may have to go back and amend a tax return, which is not a bad thing. But it takes just some planning, good planning, sitting down with a good tax professional, tax advisor so that we can help you to really make these wise choices and decisions so I would say don’t hurry to go and get your taxes done.
If you’re especially working on one of these areas, you still have some time to get it done. But yet, we can sit down, we can consult, we can go over and figure out what is best for you as a taxpayer. If you have a qualified COVID-19 distribution that’s free of penalty, with the possibility of making a contribution back in. We’re gonna come back in a little bit, talk a little bit more about retirement plans and how here we do more than just tax returns for you. Back a little bit. This is The Tax Answers Advisor with Marcelino Dodge, on the Voice America Business Channel.
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Are you wanting to grow wealth faster, save time and build the next egg? Hire a tax pro who makes you money and does more than just file your tax return? Marcelino Dodge of Cash Tracks Financial identifies your key numbers, works year-round to improve your numbers, and keeps you compliant and helps you achieve goals faster. Call Marcelino Dodge today, 719-336-8739 to schedule your free tax strategy review. Call 336-8739 or visit cashtracksfinancial.com.
Many people want to build wealth or grow their business faster, but do not know what specific numbers to look at that actually helped build monthly cash flow. Hire a tax pro who makes you money and does more than just file your tax return. Marcelino Dodge of Cash Tracks Financial identifies your key numbers, works a year-round to improve your numbers, keeps you compliant and helps you achieve goals faster. Schedule your free tax strategy review by calling 719-336-8739 or visit cashtracksfinancial.com.
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When it comes to business, you’ll find the experts here. Voice America Business Network.
This is The Tax Answers Advisor with host, Marcelino Dodge. To reach our program today, please call in the number is 1-866-472-5790. That’s 1-866-472-5790. You may also send an email to firstname.lastname@example.org. Now, back to The Tax Answers Advisor.
Marcelino: Welcome back. This is Marcelino Dodge. Appreciate you’re tuning into the program today. We have vital information here on COVID-19 distributions from your retirement plans and how you need to be wise. If you’ve done this already and even make sure that the tax professional working with you is doing them right, that’s my concern here, and then going forward whenever you deal with your retirement plan. It is absolutely vital that you speak with your tax advisor, have one in your hip pocket so to speak, that’s, and that’s what we Cash Tracks Financial really strive to do is to help you to make wise choices in regards not just to your retirement plan but to your overall taxes. And how a retirement plan distribution can affect your tax return, and certainly that’s why we’re here year around, because many times we see as ones have left their job or perhaps they had a COVID-19 distribution that they needed to take.
We, we work to try to help you to understand okay this is what if you take this amount out, this is what’s going to happen, talk to you tax wise. That way there’s no surprises, you’re ready to go, you know exactly what’s going to happen. And in general, we’re not sure what 2021 is going to bring as far as retirement plan distributions and so on but nothing, nothing new apparently going as of the date of this recording.
What we do need to keep in mind is that if you do leave your work, wherever you’re working and you have a retirement plan there be at a 401k, a simple IRA, 457 plan, whatever it is. I always want to consult with ones and let them know that your first option is one to talk to somebody, especially like myself who’s well versed in these areas to help you to make a wise choice. Because too often, over 20 years of working with taxes and people, I’ve seen too many people rush.
And just cash out their retirement plans, so I’m no longer there I’m just gonna take the money and run. Well, I understand what you’re saying and I understand that. However, the consequences of that in, 90% of the time at least is costing you money, especially if you’re dealing with something that’s $50,000 or more of retirement that you’ve accumulated that has money that you’ve contributed has money that an employer has matched. It’s vital that you talk to a tax person.
And that’s where if you rely and you’ve been doing your own taxes for years. No, I just got a simple return all this kind of information. Well, it’s this is where I see the most mistakes that people make, is when it comes to their retirement plans when they leave, or change jobs. That’s why we’re here is to help you to really to get through that to walk through the mud of it down, understand that. Is it the best for me to take this out, what’s my circumstances?
How’s that gonna affect my taxes? Because, as I mentioned earlier, many times what I see people do is when they cash these out, it jumps into tax brackets so they end up paying an extra 10% tax on this, that otherwise they wouldn’t pay. So in essence, they especially if they go from 12 to 22. Not only are you paying the 10% withdrawal penalty then you’re paying another 10% in an income tax. So then the question arises, well how do I get around that? How do I not do that? Well, when you come in and talk, talk to me as your tax professional. What I come in and do as I work, I explain to you about what’s going to happen. I look at your income, or look at the potential what’s in your 401k because I always want to see the statements that’s coming out is. I show the results and what will happen now, what’s the alternative. Of course, you don’t want to cash it out. I never recommend cashing retirement plan out at least the vast majority of the time. I don’t recommend it some cases it may be good.
It just really depends on amounts and circumstances. But the vast majority of the time for individuals that are working on their retirement plans as you cash them out is that instead of cashing them out, rolling it over, is usually a much, much better option. And why is rolling it over a much better option? Well, one is that you take the money from a company plan to your own individual plan. So that’s the first step you get then total control of your money from the company, it’s all yours.
You’re also not going to be subjected to cash out requirements of the custodian or the who’s ever administering the plan because when you cash it out, they say well we’re going to hold out 20%. That’s just what they do the majority of the time, and in some states they hold out tax for states, but not in every state do they hold out tax, and that’s usually the thing that catches people the most.
They always think, wow, taxes were held out of this, but guess what, majority of the time state tax has not and that’s where I’ve seen people get big state tax bills because, yeah, most of the federal is covered but the state didn’t get covered. And these are issues that we can address by having your money into an individual IRA, especially if you’re not looking at using all the money, but you’re looking at maybe using a portion of it over time.
Well, if you have it in your individual IRA instead of having one big chunk hit you tax wise, you can leave it there and if you do need it for some well, almost say home repairs or whatever you’re going to think of doing, taking it out a little bit at a time, especially between tax years. This is a great trick that I really like to use with individuals who have left an employer. It’s in the second half of the year.
What we got to do is we’ve got to rollover the funds to an individual IRA, and they really think they really feel that they’re going to need to use all of it. Well that’s good but don’t put it all in one year. That’s the trick of it. Can you, then we get it rolled over, can we then take okay let’s take part of it? Like in November or December? That way it hits into this tax year and doesn’t jump you a tax bracket, and then we take. What else you need, into the next year, like after January 1st?
And then after that, that way that hits that tax year and then quite potentially you avoid jumping a tax bracket, which is why it’s so vital to talk, to visit talk to someone that can help you to get through all of this information, and to be able to make good choices in regards to a distribution from your retirement plan. Now later on if you’re actually retiring, and you’re going to get back, start taking actual qualified withdrawals from your retirement plan. Still, it’s a good idea then to instead of cashing it out if you have a 401k. Again, looking at a real, good rollover option. If you’re in an area where you’re not going to have the of course, you’re 59 and a half, you don’t have the 10% penalty looking to retire.
What you can do is there’s a way. Now use it with some clients of how you can actually use your retirement, tax free. Many people are, what why am I supposed to be taxed on that? Well yeah, that is true. But what most people miss and sometimes even banks don’t know about but can you go, especially if you’re doing business with a bank, is that they just do an automatic 10%. They don’t know the person’s tax situation.
That’s where and why, it’s again vital to use your tax person, your tax consultant, your tax advisor to help you to make good choices in regards to what you’re going to take out of your individual IRA. Because, as we look at the various rules, regulations, and depending where you are in your income. If you do it right even though it’s in an IRA that normally would be taxed. If you take out only certain amounts, during the year.
And if you’re getting Social Security in addition to that, if you only take out certain amounts and it depends on your filing status as well if you’re because if your individual filing status, it’s one number. If you’re married filing joint filing status is a different number, but still it’s interesting to consider, because I got, and it’s worked several year, worked for a long long time is that if you as a individual draw below what’s known as the filing threshold or filing requirement. Usually, you don’t pay any tax on that withdraw.
What? Yeah. So it’s very interesting to think about that concept of how you can do that and that’s where, as looking at Cash Tracks Financial here, Marcelino Dodge. That’s where we’re more than just tax returns here. Our custom process helps you whether an individual or a business to achieve goals faster. We work with you throughout the year to do these to accomplish these goals. And when we do this, it is a part of the overall package that we do, because your tax the county work is a part of what we do is not just what we do, it’s a part of what we do.
We want to help you to reach these goals by means of a custom process that helps to identify what your goals, are helps you to reach your goals, helps to identify, perhaps, threats to what you have going on that we can help you to possibly eliminate. And through our personal and business bundles, we strive to help you to understand so yes, as we meet you in person or if we meet you via a web conferencing, no matter where you’re located, as you have discrete discovery with me. Yes, you can have this free discovery session, just by calling me its 844-394-4287. We can schedule a time, you can email me email@example.com of course, visit our Facebook page.. And we want to work with clients, who’s going to get a ton of value from our service, and then when you enroll with our services, you get additional access to the team, to myself, for no additional cost, and you get quality year around service and we’re going to help you to be proactive.
When it comes to your tax return, so that as you look at your retirement plan you want to make some decisions, we’re here to help you to make those decisions so that you pay. Again, as little tax as possible because as we look around the world, everybody’s looking for various solution, they’re looking for guidance in these times. I’m here to help you to do this. So, yes for a monthly fee that’s determined for individuals and on an individual basis depending on what your particular needs are. We can do that.
And we’re to help and we want to help because we take a personal interest in people. We help to manage the steps and actions that are happening and with the quality of year around service, you’re not just getting a tax professional who is here January through April or June if they extend it. You have someone who is available in September, October, November and December to sit down to go over your information, to help you to prepare for the next upcoming tax season and be able to be successful financially.
So, yes, of course, feel free to give me a call. That’s 844-394-4287, and we do respond all calls within 24 hours if you do leave a message. So we do thank you for listening today, and hope that your 20201 is great and fabulous and that keep in mind that yes a tax professional, a true tax professional is always one that helps you not just now to wait for 15th. But helps you throughout the entire year. Again, I thank you for listening to The Tax Answers Advisor. I’ll be speaking to you again next week at 9 am Pacific. This is Marcelino Dodge on the Voice America Business Channel.
Thank you for listening to The Tax Answers Advisor with host, Marcelino Dodge. We’ll be back again next Thursday at 12 noon Eastern time, and 9am Pacific time, on The Voice America Business Channel. We’ll have more to share next week.
Cash Tracks Financial Inc.
117 W Beech St
Lamar, CO 81052
Toll Free: (844) 394-4287
Fax: (719) 336-8799
Phone: (719) 336-8739
Toll-Free: (844) 394-4287
Fax: (719) 336-8799
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