On Jan 5, 10:43*pm, kam...[at]panix.com (Arthur Kamlet) wrote:
- quote -

Our questions are:


1) He resides in New York City. This means that his lump sum
will be
taxes by the Federal Government, State and City. Is this correct?

Yes Look at the NY tax form IT-230 and its Instructions to see howt
they tax a 4972. It looks like NKYState and City total about $3,000.

2) What / how can we figure out what are the taxes owed on this
total
amount?

The instructions for form 4972 and NY form IT-230 tell you how to
figure the tax..

The 4972 tax for a $270,000 Lump Sum Distribution will be $56,770, for
an average tax rate of 21%. If he made any After-tax Contributions,
deduct them from the $270K. He cannot roll over to an IRA AND take a
4972 DIstribution. He cannot take only part of the $270K. He can
take a 4972 separately on his pension if he wants to lump sum it (if
allowable). The 4972 Instructions are misleading regarding
prohibiting more than one 4972. I personally took 3 for different
plans.

You should compare this one-time 4972 tax with the tax on RMD's (His
RMD amount of ordinary income would be about $14,000 in 2009 and
increasing each year). The RMD adds to his AGI and is taxable
ordinary income at his tax bracket. When he dies any remainder is
taxed to his heirs at their tax bracket.

The 4972 is a lump sum of tax and does not add to his AGI nor ordinary
income tax bracket, nor add tax on heirs, however the subsequent
earnings on the lump sum are taxed as any investment would be.


3) If he does take a lump sum, will he get the full amount from
the
401k folks and then pay the taxes at the end of the year, or all
deductions
(for taxes) are made before he is sent the money?

20% withholding will be taken from the lump sum, or about the amount
of 4972 taxes due.

4) If he earns $50K (pension, social security) in 2009 and on
top of
he takes out the $270K, will he then be considered making $320K for
the year
2009

No, it does NOT effect his ordinary tax nor income since it is a just
another tax on his 1040 line 41(b) and doesn't enter into his AGI nor
AMT.

or will his $50K will be taxed at his normal rate and the $270K will
be
taxed at the special "form 4972" rate?

Yes


5) What is the difference between form 4972-S and 4972-T ?

Same form in tax programs for "Taxpayer" and "Spouse".

6) What is this "10-year average" qualification that I see
people
asking about?

That is it. Lump Sum form 4972. There used to be 5 year averaging
but it is no longer available.

Thank you very much for your help with this matter! I am
trying to get
some ideas of what he will be dealing with.

It is very straight-forward. Just fill out the form 4972 and enter
the tax on his 1040 at line 44(b). NY is a bit more complicated but
much of it won't apply to him as there is no annuity nor Long Term
Capital Gain. good luck

ed

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In article <da692d3c-6adb-493a-8c5f-2f47d3503895[at]40g2000prx.googlegroups.com> ,
hr(bob) hofmann[at]att.net <hrhofmann[at]att.net> wrote:
- quote -

Actually that's what ten-year averaging with lump sum distribution does.

It calculates the tax as if the income were spread out over ten years.

Lump sum distributions using ten-year averaging is offerred as a
good thing; as a possible tax savings technique.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
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On Jan 5, 8:46*pm, "Michael B." <mystic02remove_this_p...[at]verizon.netwrote:
- quote -

Does he need all the money right away, or could he roll it over from
his employer into a rollover IRA? Spreading the money received over a
few years, even 2 or 3, could cut his tax bracket considerably..

--
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Thank you everyone for your time and your answers. I will definately
consult a pro for this matter.

"Michael B." <mystic02remove_this_part[at]verizon.net> wrote in message
news:2bd8l.3195$BC4.1946[at]nwrddc02.gnilink.net...
- quote -

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On Jan 4, 5:19*pm, "Michael B." <mystic02remove_this_p...[at]verizon.netwrote:
- quote -


As the IRS page Art referred you to explains, this is a complicated
area because your dad is in the age group (born before 1936) that
still has several options as to how the distribution will be taxed.
You really have to figure the federal income tax two or three
different ways to determine which election works best for a particular
taxpayer's situation. In addition, New York State and New York City
impose separate taxes on lump sum distributions using a rule that is
different from the federal treatment. I would advise your dad to
consult a tax professional in New York before taking the distribution.

Katie in San Diego

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In article <avrum223-9DC347.19514204012009[at]news.la.sbcglobal.net> ,
Avrum Lapin <avrum223[at]verizon.net> wrote:
- quote -

Well, I think you missed the lump sum distribution aspect of
this question. When you say there is no longer 10-year
averaging, that gave it away :^)

Start here and click on some of the links provided. OP seems to
have done some good homework, and I tried to add some more.

http://www.irs.gov/taxtopics/tc412.html

--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <gjro0u$o7t$1[at]reader1.panix.com> ,
kamlet[at]panix.com (Arthur Kamlet) wrote:

- quote -


Since he is over 70, there is no early withdrawal penalty. There is no
longer a 10 year averaging .

If he takes a distribution he will get a 1099R and and it will be
included in his gross income. Note that if there is after tax money in
his 401K then that will not be included in the gross income.

With his other income he will be hit hard with taxes. (might lose half
of his 410k) He might want to consider first taking out any after tax
dollars and then roll the rest into an IRA and taking out a bit ever
year. A trustee to trustee rollover does not result in a taxable event.

The 401K plan will withhold 20% for the IRS and ? for both NY and NYC
unless told otherwise.

Don't know if NY taxes 401k and IRA withdrawals but CA does.

Also not of SS is taxable. There is a worksheet.

A half hour with a real (not H&R) tax person is well worth it.

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- quote -

The only IRS form is Form 4972. I think you are looking at a
list of forms in some tax software, such as TurboTax. The
software has two copies of Form 4972 because the form
applies to only one individual, even on a joint return. So a
joint return could have two copies of the form. Form 4972-T
is Form 4972 for the Taxpayer - the first or only person
listed on the return. Form 4972-S is Form 4972 for the
Spouse - the second person listed on a joint return.

Bob Sandler

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

In article <2bd8l.3195$BC4.1946[at]nwrddc02.gnilink.net> ,
Michael B. <mystic02remove_this_part[at]verizon.net> wrote:
- quote -


When discussing income and taxes, some income is taxable income.

Some is non-taxable income.

Some is tax exempt income.

And in this case, Lump Sum Distribution from a qualified
employer plan, you have the case of taxable non-income.


This lump sum distribution income is not counted as income, does not
add to AGI. Does not add to the taxability of social security income.

But it does produce a tax advantaged income tax. That's what the
lump sum distribution form does for you.


I cannot comment on state/city income tax. And the business
of ten-year averaging is done for you by just following line
by line instructions for the form.


The 401k plan manager might withhold income tax, but why not ask them?


Whether it makes sense to lump sum average -- it often does --
is something you'll have to try. If it works well for you, go for
it.
--


ArtKamlet at a o l dot c o m Columbus OH K2PZH

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >

My father, who was born in 1930 has just finally retired from his full-time
job on December 31, 2008. He has never touched his 401k, which is now
around $270,000 and all of it is in a money market account.

- quote -

4972 during the 2009 calendar year.

Our questions are:

1) He resides in New York City. This means that his lump sum will be
taxes by the Federal Government, State and City. Is this correct?
2) What / how can we figure out what are the taxes owed on this total
amount?
3) If he does take a lump sum, will he get the full amount from the
401k folks and then pay the taxes at the end of the year, or all deductions
(for taxes) are made before he is sent the money?
4) If he earns $50K (pension, social security) in 2009 and on top of
he takes out the $270K, will he then be considered making $320K for the year
2009 or will his $50K will be taxed at his normal rate and the $270K will be
taxed at the special "form 4972" rate?
5) What is the difference between form 4972-S and 4972-T ?
6) What is this "10-year average" qualification that I see people
asking about?

Thank you very much for your help with this matter! I am trying to get
some ideas of what he will be dealing with.

Michael

--
<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >