After exiting your old job, you’ll probably want to roll over money from your former employer’s qualified retirement plan (or plans) into an IRA. That way, you gain full control over the funds while continuing to defer taxes. Here are 3 tax traps to avoid.
If you’ve left your job, doing an IRA rollover of the balance in your company retirement plan is usually a tax-smart move. A rollover allows you to continue to defer taxes on the amount you roll over. But our beloved Congress laid some federal income tax traps for the unwary. Don’t be among the unwary. Here’s how to avoid the pitfalls.
Example: After leaving your job at age 50, you’re due $300,000 from the company 401 plan. You want to roll over the entire amount, but you fail to arrange for a direct transfer. So, you receive an EFT to your personal account in 2022. Surprise. The EFT is only for $240,000. The “missing” $60,000 went to the U.S. Treasury for mandatory 20% federal income tax withholding. Oops.
In contrast, if you roll or transfer the money into your IRA and then need to withdraw some or all of that amount before age 59½, you’ll generally owe the 10% early withdrawal penalty tax on top of the income tax hit. Ouch. The bottom line You would think that arranging for tax-free rollovers of employer retirement plan balances into IRAs would be a relatively foolproof task. But our beloved Congress has dictated otherwise — for inexplicable reasons that illustrate why you don’t want the government controlling your life. That’s why I hear about failed rollover attempts — and unnecessary tax hits — year after year with no end in sight.
You can only do one of these IRA-to-IRA rollovers within any 12-month period. If you take two or more withdrawals within that period, the extra withdrawal will count as taxable distributions that can trigger an income tax hit and the 10% early withdrawal penalty tax if you’re under age 59½. Why this weird limitation? Who knows, because it serves no logical tax-policy purpose that I can detect.
Indonesia Berita Terbaru, Indonesia Berita utama
Similar News:Anda juga dapat membaca berita serupa dengan ini yang kami kumpulkan dari sumber berita lain.
Common IRA rollover tax traps — and how to avoid themIt’s way too easy to run afoul of punitive tax rules when you do an IRA rollover.
Baca lebih lajut »
Common IRA rollover tax traps — and how to avoid themIt’s way too easy to run afoul of punitive tax rules when you do an IRA rollover.
Baca lebih lajut »
Illinois suspends grocery tax, delays gas tax increase July 1; property tax relief — what to knowSome big changes will be taking effect Friday across Illinois to ease the financial burden for people across the state. Residents will also be receiving tax rebates in the coming months. Here's what you need to know:
Baca lebih lajut »
The No. 1 Mistake You're Making That Is Killing Your Plants — Best LifeHaving trouble with your greenery? According to experts, you should avoid using cold water if you want to avoid killing your plants.
Baca lebih lajut »
Gas Tax and Grocery Tax Relief, Minimum Wage: New Measures Take Effect in IllinoisFrom gas and grocery tax relief to minimum wage hikes in some counties, a number of new measures are now in effect in Illinois.
Baca lebih lajut »
Temporary relief from grocery taxes, gas taxes coming to Illinois starting FridayIt comes at a time when many families are understandably struggling with increased prices for groceries and other needs, due to inflation.
Baca lebih lajut »