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SIMPLE IRA Withdrawls (without Penalty)


Guest RobertG
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Guest RobertG

Upon the assumption I would be using pre-tax money to finance a SIMPLE IRA, I contributed for the 2 (there are only 2) employees in my company. My accountant later decided not to use this as a contribution making our contibutions post-tax contributions. As I understand it, if I was to withdraw the money, I would have to pay a 10% penalty. Is there anyway I can avoid the 10% withdrawl penalty or paying tax a second time when I choose to withdraw it in years to come?

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Upon the assumption I would be using pre-tax money to finance a SIMPLE IRA, I contributed for the 2 (there are only 2) employees in my company. My accountant later decided not to use this as a contribution making our contibutions post-tax contributions. As I understand it, if I was to withdraw the money, I would have to pay a 10% penalty. Is there anyway I can avoid the 10% withdrawl penalty or paying tax a second time when I choose to withdraw it in years to come?

If you properly adopted the SIMPLE and was required to make contributions- I am not sure your accountant is allowed to make that decision. Were any of these contributions salary deferral and/or employer non-elective/matching contributions? If so, and you adopted the SIMPLE and provided the required notifications, you may need to amend your tax-return and show the amounts as contributions to the SIMPLE. If not, then the contributions may be excess contributions, which if removed timely may not be subject to the early distribution penalty- except for any earnings.

Can you provide us with responses to the questions in bold above, as well as some additional details? For instance, when were the amounts deposited to the SIMPLEs and for what tax year?

Please let me know if if you ahev questions on the above.

Denise

Life and Death Planning for Retirement Benefits by Natalie B. Choate
https://www.ataxplan.com/life-and-death-planning-for-retirement-benefits/

www.DeniseAppleby.com

 

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  • 3 weeks later...
Guest RobertG

The contribution was made in 2005 and it was a lack of communication that led to the tax return being filed without salaries and consequently unable to count a SIMPLE contribution as a deferral. I realize the return can be amended but are the amendment penalties going to be less than the 10% withdrawl fee I will have to pay?

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Are you saying that none of the employees had any compensation for the year?

If so, how (from what) were "elective" contributions made?

Were elective contributions made?

Were they matched?

The penalty may be either 25% or 10% depending upon when the Simple-IRA account was established.

Perhaps there is a solution, but more accurate facts are needed.

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