USA Withdrawing State Retirement Pension Early


kirby

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"Ooops. Here's the deal: "While the IRS has made provisions for members to take loans from IRA and 401(k) account, the ASRS (ARIZONA STATE RETIREMENT SYSTEM) retirement plan is classified as a 401(a) defined benefit plan by the Internal Revenue Service (IRS) and is exempt from the CARES Act "
Quote is from original poster who was told the above. CARES does not apply to 401a.

Why talk about "please try to keep the etiquette and professional behavior at a level that this forum deserves." When YOU say this about poor Kat "as I did for KAT who was unable (or too lazy) to find FBAR " Now that is a personal comment and is uncalled for. I think you owe Kat an apology. And for the record, my post above states a fact and makes no personal comment toward you.
 
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So here's what a CPA friend says and i'm wondering what you think: " The extra income would put you in a 24% tax bracket. You will pay a 10% early withdrawal fee. This 10% is in addition to any other taxes paid on it. I put a $90,000 withdrawal into the 2019 tax software and you would owe around $32,000. If you had 25% taken out at the time of the withdrawal ($22,500) you would still owe about $9,400 to the IRS."
Thanks!
 

kirby

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Since the 401a isn’t covered by CARES ask your CPA friend if you can rollover from the 401a to an IRA and then get CARES treatment under the IRA because IRAs are covered by CARES.
 

KJS

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You can only avoid paying 10% tax if you do direct rollover to IRA or within 60 days come up with the amount equal to 20% that they will withheld when you make the distribution. Hardship withdrawals are also subject to early withdrawal penalty.
 
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Werner Reisacher

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Not to mention:
- Not every company/government agencies are accepting transfers of funds out of an employee's 401a as long as the employee is employed.
- The CARE ACT has established rules that define the conditions that must be met to qualify for Care Act benefits.
- Opening an IRA and closing it during the same fiscal year for the sole purpose to benefit from the Care Act tax-wise will initially take some explaining to do with the Banks who do have an obligation to monitor potential abuse of the Act.
- Applying for "hardship on early withdrawal" from the IRS, based on transactions that were construed for the sole benefit to avoid a tax penalty is not recommended.
- Banks welcome people who open and close IRA's for the sole purpose to benefit from the Care Act and to avoid tax penalties on early withdrawals. Those of you who are dealing with IRA's know, that they do not come for free and what happens if you prematurely withdraw the funds.
- And if all that works, applying for acceptance of hardship with the IRS related to a series of construed transactions usually does not end well. When it comes to judging a situation, the IRS always considers the accumulated amount and purpose of a series of related transactions in their judgement as "one transaction".

In short, this is a case that requires professional advice that goes beyond using a CPA's tax software.
 
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