took money out of Roth to live on now I owe taxes
I was losing my house and had lost my job so I took all the money out of my Roth the 4500 I put in and the 10,000 that it had earned now my accountant says I owe 1200 in taxes.
Isn’t there something that if you are broke and have no money, no job something so I don’t have to pay so much in taxes? I don’t have money to pay the IRS.
Seems to me if I never put it into a Roth but just invested it into a mutual fund I wouldn’t owe.
Permalink Submitted by Alan Spross on Sat, 2008-08-02 23:12
Unfortuneately, there is no exception to the ordinary taxes due, but you may qualify for an exception to the early withdrawal penalty.
Assuming you are not yet 59.5, your Roth distribution is taxable to the extent of earnings, which is 10,000. There is also a 10% penalty on those earnings, but there are some possible exceptions that would apply to the penalty in your case. Some of those exceptions are:
1) You had unreimbursed medical expenses over 7.5% of your AGI
2) You paid for medical insurance and due to job loss you collected unemployment for at least 12 consecutive weeks. There are some time related conditions to this per Pub 590, p 53.
This is not alot of help, but keep paying attention to tax changes because Congress is likely to continue to pass recession related relief measures of various kinds.
Note that if you had invested in a taxable mutual fund, you would still owe capital gains taxes along the way due to fund distributions, and when you sold you would owe cap gain taxes on the amount of gains in excess of your basis.
Permalink Submitted by Lucius LaRouche on Thu, 2008-09-11 04:42
jmalan–very sorry to hear about your circumstances. My heart goes out to you.
My heart also goes out to a couple I met this week while campaigning for Barack Obama. I met two people who are apparently squatting on someone else’s land because they lost their home of 13 yeras in the recent housing/credit crunch.
Several years ago they took money out of the gentleman’s retirement (not sure if that was a type of IRA or a 401k) so they could buy the woman’s brother a home to pass away in; he was a lifelong alcoholic.
While these were not medical expenses per se, they did buy a house, and it was under conditions of duress. They are now in dire financial straits and are terrified that when the Tax Man comes they’ll be in even deeper trouble.
My apologies for not being clear–this question straddles IRA/401k law and also the Estate Tax. I would guess that they have already dealt with whatever liabilities they had for buying the house, but that is also unclear. Does anyone on this forum know what would happen if the now-deceased brother had back taxes on the home or other liabilities? Will this couple have to absorb his debts if they wish to acquire his home?
Permalink Submitted by Alan Spross on Thu, 2008-09-11 19:43
The local taxing authority would certainly have a valid lien on the home for the back taxes plus interest. However, assuming the couple retained title to the home and did not gift it to the brother, any other unpaid debts the brother had should not attach to the house solely because he was living there. A simple title search should reveal the extent of any liens filed on the home.
Reading the post it is not totally clear who actually has title to the home and that makes a big difference.