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Taxes and Sarsep early withdraw questions?


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Guest Taipans

Hey guys im currently filing my taxes and had some questions on the sarsep withdraw's I made last year.

I hit some financial hardship mid 2004 and had no choice but to pull a large amount out of my sarsep account in order to pay things off. At the time I was not fully aware of the penalties associated with the early withdraw and though the 10% penalty was the only money that had to be paid.

Well now that im filing I have finally learned that the entire amount I took out is counted as taxable income. Yuck... It ends up costing me about 1300 on my refund. My wife and I was counting on our return to keep us afloat as we keep drowning in debt. Anyhow since all the money was taken directly out of my paycheck over the years, and the employer matched it im guessing I wouldnt have a basis? Is there any loopholes or anything I can do to take some of the sting of my early withdraws? Or a way to defer all this until next tax season? Anything would help!

If anyone can give me some advice I would really appreciate it!

Thanks so much,

Mark

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Check publication 590 to see if you qualify for any penalty exceptions. Talk to your tax professional. All distributions from Tradeitional IRAs are ordinary income unless you have established a basis through non-deductible (After tax)contributions.

JEVD

Making the complex understandable.

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Guest Taipans
Check publication 590 to see if you qualify for any penalty exceptions. Talk to your tax professional. All distributions from Tradeitional IRAs are ordinary income unless you have established a basis through non-deductible (After tax)contributions.

Thanks Jevd!

I looked at the 590 Publication and it brings up AGI issues and a table if certain things are deductable? Im married and have 2 children, my wife doesnt work and we are filing jointly. Would I qualify for anykind of deduction? I dont understand the entire AGI thing?

Thanks!

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Welcome to your first course in income taxes. Look at the last line on your 1040 filing, the Adjusted Gross Income (AGI). It may confuse you a little, but you will learn to take actions that do not cause so much pain in your future.

Generally, money for retirement that is in a pension plan, 401k, IRA, or similar trust funds is money that has not been taxed yet. There are some exceptions, but you have not shown that any apply to you. Once the funds are in your possession, they are taxable.

Keep reading the IRS publications and trying to understand their meaning, for your own benefit.

Also, go see your local credit counselor, because your problems don't get better by themselves.

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If you were truly not notified of the penalty provisions, or led astray by a "professional" or financial institutions, there may be remedies available. In this case, most would cost more than the penalty (PLR ruling request). However, you could always attach an explanation to the tax return (I'd have it professionally prepared).

Ouch. Unfortunately, most distribution request forms provide information about the penalties, and it might be difficult to argue that you didn't know about them. That being said, perhaps there is a reason/situation as to why you never saw/understood the explanation.....(penalty abatement for reasonable cause)...and it would be unconsionable to deny you relief.

Good luck.

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