46erjoe wrote:

- quote -

First, you should be able to transfer the money to an IRA.
As a direct transfer you will not take possession of the
money. My rollover check came to me as "Pay to Charles
Schwab and Co for deposit to account of JoeTaxpayer". I just
dropped off the check, never had the money. Now, once at a
broker, you can take a withdrawal and estimate your own
withholdings. 100% disabled = no 10% penalty.

And both of you not working means you are likely in a low
bracket, so you can have lower withholding or none, but be
careful to calculate the year's impact to avoid penalty for
underwithholding. (Don't take the withdrawal this year as it
will be added to your 05 income, but you should start the
transfer process.

JOE

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

46erjoe wrote:

- quote -

Being disabled has nothing to do with whether she can cash
out her 401K. The plan document determines that. Based upon
your post, it appears that a total distribution is allowed.

There is an exception to the early withdrawal 10% additional
tax for total disability. The exception applies to 401K
pensions and IRAs.

Assuming she has no cost basis in the pension, the entire
distribution is taxable income. Taxable income of $60,000
is going to trigger tax on your social security benefits.
SSA benefits (normal and disability benefits) become subject
to tax when one-half of the benefit plus other taxable gross
income plus untaxable income such as municipal bond interest
exceeds $32,000 for a couple filing jointly. Basically,
what this means is that up to 85% of your SSA benefits would
be added to the $60000 of pension to arrive at your gross
income before any deductions.

Tax law requires that the plan administrator withhold 20% in
federal income tax unless you file IRS Form W4-P claiming an
exemption from tax or claiming less withholding. As you are
probably going to owe income tax, you should allow for
withholding.

I don't know the amount of taxable SSA benefits you will be
collecting, but 20% of $60,000 is probably going to be too
much in tax. Some number between 10 to 15 percent is
probably more realistic. You can use the 2004 tax booklet to
estimate your taxes. There is a worksheet that lets you
compute how much of your SSA benefit would be taxable if you
had $60000 of income. You could then calculate your tax bill
and ask the plan administrator to only withhold that amount.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"46erjoe" <46erjoe[at]whoknows.net> wrote:

- quote -

I assume you mean penalty-free, and the answer is yes. You
will still owe income tax on the distribution.

- quote -

No, it's Uncle Sam's money, and they're required by law to
withhold. This is a result of people in financial binds
taking the distributions and having no money left to pay the
tax on them.

- quote -

Yes

- quote -

On the withholding line of your return, just like the
withholding from your wages was reported.

- quote -

You'll receive a 1099-R showing the distribution and
withholding. There's a distribution code on the 1099. The
back of the 1099 will tell you whether you have to file
another form to claim the disability exclusion.

--
Phil Marti
Clarksburg, MD

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

My wife is 100% disabled and receives social security
because of it. She is 54. I will be retiring in January with
a 100% disability. I am 58. My wife has a 401K with an old
employer that is worth about $60K right now.

We need funds to put down on a house purchase. Because of
her disability can she cash out the 401?. The investment
company holding the 401K said they would have to hold back
20% of it for taxes. Can they do this? I mean it's not THEIR
money!

Is it true that she will not be hit with the 10% early
withdrawal fee?

Where is the 20% tax witholding entered when we do our taxes
next year? How to we claim exclusion from the early
withdrawal fee? Will there be special tax forms for this
when we do our tax returns next year?

We really do need the cash and have no choice in liquidating
all our assets for the purpose of buying a house.

Any other help you can suggest would be much appreciated.
Thanks.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >