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Author: ildiko5 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120780  
Subject: cashing out my 401k Date: 12/30/1999 3:41 PM
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I quit my job of fourteen years. I was planning to pay off my house
with what is left after taxes (about $50,000). What is the best way to minimize taxes on
your withdrawal if you are under 50? So far it will be my only income for 2000. My spouses income will be about the same next year ($50-60k) Is there a better way to do this?
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24113 of 120780
Subject: Re: cashing out my 401k Date: 12/30/1999 4:52 PM
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<<I quit my job of fourteen years.>>

In my best Eddie Rabbit voice: Take this job and shove it.....

Or did somebody else record that little ditty? Nevertheless...let's talk about you.

<< I was planning to pay off my house
with what is left after taxes (about $50,000). What is the best way to minimize taxes on
your withdrawal if you are under 50?>>

I assume that you mean taking your money from your prior employer pension/profit sharing/deferred compensation plan. If you are under 50, the ONLY way to avoid penalties on any distributions would be to take the distributions as an annuity...over your life expectancy based upon IRS tables. You'll still be liable for the taxes, but you'll avoid the penalty. But that won't help you pull a lump sum out now.

<< So far it will be my only income for 2000. My spouses income will be about the same next year ($50-60k) Is there a better way to do this?>>

Again...take it as an annuity. IRS Publication 590 will give you additional information on this technique. But if you pull out the entire lump sum, given your other income and such, it's possible that you'll see about 50% of the distribution go away in the form of federal and state taxes and penalties (depending upon where you reside). So it could really be painful.

TMF Taxes
Roy

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