AboutHelen P. O`Planick, EA Expertise I am a tax professional, with experience in individual taxation. I would prefer not to answer questions about non-resident aliens or corporate taxation. Please do not ask me state related questions, unless the state is Pennsylvania. There are 42 taxing states and 42 TOTALLY different sets of state tax law.
Experience I have been preparing tax returns almost all my life. I have been in professional practice for 25 years and I am enrolled to practice before the Internal Revenue Service.
Organizations National Association of Enrolled Agents
Publications I am a prior Money Magazine Tax Test taker and have been quoted extensively in all media including monthly periodicals and books by tax authorities.
Question Hi,
I Have recently resigned from my job of 24 years. I am 45y.o. living in Chicago, Il. currently separated with a 4 y.o. and not living with them.
I will be rolling my 401K to an IRA, probably on June 9th. My balance is approx. 123K minus my personal loan of 18K, leaving me with approx. 105K to rollover. I need to pay off my credit card and personal debt totalling 25K. I am also in the process of drawing up my business plan to incorporate a small business and will need another 20K-25K for initial startup with additional funding from investors. So total withdrawal will be near 50K.
I know i will be incurring a 10% early penalty plus my tax rate. My adj. gross income for 07 was 60K and my taxable income was $45K-line43, $6,5K-line44, total tax $5,5K-line63. I ended up having to owe the IRS $2350, because i went exempt the last 4 mos. Which i also have to pay back, included with my debt total. My IL. state refund was $119.
My questions are;
1- What will i have left over, if any. To invest or save?
2- Since i resigned and do not expect to make as much money this year, what could be my tax rate? I am receiving unemployment now, approx. $1022 every 2 wks., taxed to $889 net and maxed at $9594. I think since i have resigned i will not get the benefit anymore, or may even have to pay back what was already given.
3- What was my tax rate for 07?
4- Can you offer any suggestions to save on my taxes? Since i will be doing an early withdrawal?
I look forward to any advice you might have. Thank you.
Greg
p.s. Thank you for letting me know about the CAPITOL LETTERS. I did'nt know it was considered rude and unprofessional.
Answer Greg, thank you for retyping. If it was a short note, I can usually handle the caps, but I was getting lost! :)
You are not going to have a lot left over I'm afraid. I can't speak for IL, but for the federal, if you take out what you are thinking you need - you are going to be taxed and penalized on 68,000. You did not calcalute the loan in the 50K. So, I don't know what you made to date, but let's assume 30K.
Your 2008 income will be 30+68+10 or 108K. Taking your standard deduction and personal exemption, your taxable income is going to be around 98,200, which is taxed at an approx 22%. The INCOME tax will be 21,600 and the penalty is 6,800, so you stand to pay in in taxes $28,400 to the IRS. Even if you have to pay back the UC, you are still looking at a fed tax bill of 26,000. And if you have to pay that thru the savings in your 401K, that is just going to make matters even worse.
My suggestions - DO NOT take out the money. Find another way to structure your bills and the start up capital.
The less you can take out, the less you will owe in taxes.
