Got stuck in a bad year. I became disabled and we ran into a problem in paying bills. My wife had a loan on her retirement account and couldn't make the payments, so she closed her retirement account. They took out taxes from the remaining balance, now it's making a bit hit on our return. Next year would be a better year for the tax hit, is there a way to move it? Thank you
Kind-of depends on the total $$ showing in boxes 1 and 2a of that 1099-R form. IF those $$ were high enough, the withholding may not have been enough to cover all the taxes you owed for it (and perhaps an added 10% early-withdrawal penalty).
Now, you need to make sure you enter all the boxes on the 1099-R. Especially box 4 on that 1099-R form that shows what the withholding was, so that you get credit for prepaying those $$.
well that's not I wanted to hear ..... Since they took out over 14K in taxes whence they closed it, why does it still require another 9K in taxes?
The amount withheld is only an estimate. Your actual tax (plus 10% penalty for early withdrawal if you are under age 59-1/2) is only calculated on your tax return and takes into account all your income, deductions, and credits. You should get credit for the withholding you did pay, but if you are still short, you may owe more. Depending on the amount you withdrew, your tax could be 22% up to 36%, plus a 10% penalty if you are under age 59-1/2. Your backup withholding amount could have been as low as 10%, depending on what you requested from the plan trustee.
There are certain situation that exempt you from the 10% penalty for early withdrawal, they are listed on this page. (Be sure to look at the column for Qualified Plans, not IRAs.)
If you withdrew the money due to a Federally declared disaster (like a hurricane, flood, or wild fire--COVID doesn't count any more) you can spread the tax over 3 years and the first $100,000 can be exempt from the 10% penalty. There are no other rules that would allow you to defer the tax. And it must be a declared disaster, not just bad circumstances.
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