401K - special tax break for unemployed?

Discussion in 'Tax' started by John Smith, Jun 10, 2010.

  1. John Smith

    John Smith Guest

    I'm between 50 and 55 years old and have been unemployed for a
    year. 401K is now my last resort. Any way to avoid penalty or tax
    when I withdraw from 401K? Thanks a lot.

    --
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    John Smith, Jun 10, 2010
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  2. John Smith

    Alan Guest

    On 6/10/10 11:54 AM, John Smith wrote:
    > I'm between 50 and 55 years old and have been unemployed for a
    > year. 401K is now my last resort. Any way to avoid penalty or tax
    > when I withdraw from 401K? Thanks a lot.
    >

    Here are two exceptions you may qualify for.

    1. If you are a qualified public safety employee, distributions made
    from a governmental defined benefit pension plan are not subject to the
    additional tax on early distributions. You are a qualified public safety
    employee if you provided police protection, firefighting services, or
    emergency medical services for a state or municipality, and you
    separated from service in or after the year you attained age 50.

    2. A distribution from a qualified retirement plan to the extent you
    have deductible medical expenses (medical expenses that exceed 7.5% of
    your adjusted gross income), whether or not you itemize your deductions
    for the year.

    You can find the full list of exceptions in IRS Pub 575:
    http://www.irs.gov/publications/p575/ar02.html#en_US_publink1000226952

    Please note that you should not confuse the exceptions for an IRA
    distribution with the exceptions for a pension distribution. They are
    not the same.



    --
    Alan
    http://taxtopics.net

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2007) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Alan, Jun 10, 2010
    #2
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  3. John Smith

    Tom Russ Guest

    On Jun 10, 12:40 pm, Alan <> wrote:
    > On 6/10/10 11:54 AM, John Smith wrote:> I'm between 50 and 55 years old and have been unemployed for a
    > > year. 401K is now my last resort. Any way to avoid penalty or tax
    > > when I withdraw from 401K? Thanks a lot.

    ....
    > Please note that you should not confuse the exceptions for an IRA
    > distribution with the exceptions for a pension distribution.  They are
    > not the same.


    But presumably since the OP is unemployed, he should be able to roll
    over the 401K into an IRA. And that would then qualify for the IRA
    rules, right?

    IIRC there is the "substantially equal payments" exception that would
    allow penalty-free (but not tax-free) withdrawals. The OP would have
    to continue the withdrawals until age 59 1/2 or for 5 years, whichever
    is longer. And the payment schedule can't be changed once started
    without penalty consequences.

    There is no way to avoid regular income taxes on withdrawing from a
    401K or IRA. Well, if some of the contributions were after tax
    contributions -- not very likely -- then a portion of the withdrawal
    might not be taxed.)

    --
    << ------------------------------------------------------- >>
    << The foregoing was not intended or written to be used, >>
    << nor can it used, for the purpose of avoiding penalties >>
    << that may be imposed upon the taxpayer. >>
    << >>
    << The Charter and the Guidelines for submitting posts >>
    << to this newsgroup as well as our anti-spamming policy >>
    << are at www.asktax.org. >>
    << Copyright (2007) - All rights reserved. >>
    << ------------------------------------------------------- >>
     
    Tom Russ, Jun 11, 2010
    #3
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