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Author: raven06 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: Profit Sharing Date: 3/18/2000 7:51 PM
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<<My mother had a Profit Sharing Plan at her work. When she retired they
cut her a check for the whole amount. She was 68 years old. She doesn't
believe it was an IRA or 401K and I haven't read her docs yet
She deposited it in CD's a credit union.

Does she have to pay income taxes on the whole amount or just what she
draws out?

Should it have been rolled into a IRA? >>
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20260 of 75340
Subject: Re: Profit Sharing Date: 3/19/2000 10:39 AM
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Greetings, Raven06, and welcome. You wrote:

<<My mother had a Profit Sharing Plan at her work. When she retired they cut her a check for the whole amount. She was 68 years old. She doesn't
believe it was an IRA or 401K and I haven't read her docs yet She deposited it in CD's a credit union. Does she have to pay income taxes on the whole amount or just what she draws out? Should it have been rolled into a IRA? >>


Uh oh... I think mom just dug a big hole for herself with the tax man. A profit sharing plan is a qualified retirement plan fully eligible for transfer to an IRA. If kept by the recipient, the proceeds will be taxed in the year of receipt. Your mom took that money. If her credit union was on the ball, they may have had her invest in the CDs within an IRA. If not, she now owes regular income taxes on the previously untaxed monies she received as a result of that distribution.

If she is still within 60 days of receiving that check, then she can still get the money to an IRA to avoid taxes. That's the deadline for rollover. However, be aware that 20% was withheld by the plan at distribution as withholding for potential taxes. That missing 20% will still be counted as a distribution to her on which she will still owe income tax. To avoid it, she must add that 20% to her IRA rollover. Then the 20% would be refunded to her at tax time.

If you're unsure how to proceed here, see your mom's tax advisor ASAP.

Regards..Pixy

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20278 of 75340
Subject: Re: Profit Sharing Date: 3/20/2000 9:13 AM
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<< Does she have to pay income taxes on the whole amount or just what she
draws out? >>

Pixy's already given you the straight skinny on taxability of the distribution. If it wasn't rolled over and it's too late now, the distribution MAY be eligible for lump-sum averaging. You can check this out in IRS Publication 575, available at http://www.irs.gov

TMF ExRO
Phil Marti

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