Discussion:401k distribution - no federal taxes withheld!
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| Revision as of 16:37, 23 October 2008 JR1 (Talk | contribs) (I thought withho) ← Previous diff |
Revision as of 16:43, 23 October 2008 Lmcdon9822 (Talk | contribs) (KevinH - I have) Next diff → |
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| {{ForumReplyPost|UserID=JR1|Date=October 23, 2008|Text=I thought withholding was only required on IRA's. Couldn't he have opted to have no withholding?}} | {{ForumReplyPost|UserID=JR1|Date=October 23, 2008|Text=I thought withholding was only required on IRA's. Couldn't he have opted to have no withholding?}} | ||
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| + | {{ForumReplyPost|UserID=Lmcdon9822|Date=23 October 2008|Text=KevinH - I have seen more dump things in this business... | ||
| + | Stockguy - of course it was covered - typo there... | ||
| + | D&T - I asked the client the same question and the response I got was, "I don't remember." | ||
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| + | THANKS!}} | ||
Revision as of 16:43, 23 October 2008
Discussion Forum Index --> Basic Tax Questions --> 401k distribution - no federal taxes withheld!
Discussion Forum Index --> Tax Questions --> 401k distribution - no federal taxes withheld!
Lmcdon9822 (talk|edits) said: | 23 October 2008 |
| I have a client who took 2 distributions in 2005 in amounts over 100K each. The custodian did not withhold the required percentage for federal taxes and now the IRS is knocking on the clients door with taxes, penalties and interest. I know at the end of the day, the client has to pay the IRS. However, is there something the client can do to hold the custodian accountable? The client did receive the 1099 for that year, but the return was prepared by "people" and they did not include the 1099 information on the return. | |
| 23 October 2008 | |
| 1) could these have been 'deemed distributions' of unpaid loans from the 401(k)? There was no money to withhold if they were. I believe loans are only allowable up to $50K though, so that might not be it at all.
2) We don't know if the client conveniently forgot to tell his 'people' preparing the return, but if he never got the money that year (because it was borrowed earlier) then that might be a reason. Surely he is not stupid enough to have signed a return that omitted over $200,000, is he? If he is, he deserves the penalties. | |
Lmcdon9822 (talk|edits) said: | 23 October 2008 |
| It was not a loan, nor did the client had any loans out at the time. Here is more history. The client requested the funds from his 401K to buy a house. The client came to me confused about why the IRS says he owed that much money since he told the custodian to withhold the required taxes needed. Going through his 2005 tax return and forms, I showed him on the 1099 where the withholding is suppose to be. ZERO, NADDA, NOTHING. Of course the client was steaming mad because if the "people" who prepared the return that year saw that, he would at least avoided the penalties and interest over 3 years. Isn't it required by law that at least 10% is withheld for federal taxes? | |
| 23 October 2008 | |
| The amount that's required to be withheld is 20%. (Was that not covered in your Series 6 study material?)
I'm with Kevin. I have a hard time feeling sorry for this guy. | |
Death&Taxes (talk|edits) said: | 23 October 2008 |
| But no matter, he was the one to look at the return, review it and sign it. 200K was missing. Small omission, huh?
And remember if he needed that money, he would have had to take out 300K or more to cover the taxes on such a distribution [plus the 10% penalty for early withdrawal, assuming it applied]. Look at it this way: client tells custodian he wants 200K to buy a house, (I am presuming that it is a hardship distribution). Lo and behold, 200K arrives in the mail. Did he not think something wrong then? And I believe the standard withhholding on these is 20%, which would be far from adequate anyway, especially with the 10% additional penalty. Blaming someone else seems to be our national pasttime. | |
| October 23, 2008 | |
| I thought withholding was only required on IRA's. Couldn't he have opted to have no withholding? | |
Lmcdon9822 (talk|edits) said: | 23 October 2008 |
| KevinH - I have seen more dump things in this business...
Stockguy - of course it was covered - typo there... D&T - I asked the client the same question and the response I got was, "I don't remember." THANKS! | |
