BG5150 Posted June 4, 2009 Posted June 4, 2009 The recent thread on hardships being grossed up for taxes got me thinking (I hate when that happens!) What if someone overestimates the amount of taxes? For example, say someone requests 10,000 in a base hardship. Then includes the 10% penalty tax (1,000). And for Federal tax they assume a 35% rate (3,500) for a total of 14,500. What happens if the person is in the 25% bracket at the end of the year? Obviously the h'ship was more than the need + taxes & penalty. QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
masteff Posted June 4, 2009 Posted June 4, 2009 IMO, the key question is: Was 35% a reasonable assumption at the time of the withdrawal? Kurt Vonnegut: 'To be is to do'-Socrates 'To do is to be'-Jean-Paul Sartre 'Do be do be do'-Frank Sinatra
Guest Sieve Posted June 4, 2009 Posted June 4, 2009 Masteff's key question is spot on, and is presumably based on the regs' language that "the amount required to satisfy the financial need may include amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution." (Treas. Reg. Section 1.401(k)-1(d)(iv)(A). Emphasis added.)
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