TheStreet + TurboTax Present: A Comprehensive Guide to Early Withdrawal from 401k and IRA for Tax Year 2022

It's important to understand the tax implications of withdrawing money early from your retirement accounts. CPA and TurboTax tax expert Lisa Greene-Lewis is here with what you need to know. TurboTax Home: TurboTax Support: TurboTax Blog: TurboTax Twitter: TurboTax Facebook: TurboTax Instagram: TurboTax Pinterest: TurboTax Tumblr: ~~~ Video Transcript ~ Title : 2022 Tax Tips: A Guide to 401k and IRA Early Withdrawal - Presented By TheStreet + TurboTax - [MUSIC PLAYING] TRACY BYRNES: All right, so it's inevitable. Life happens and we dip into our retirement accounts. But is it a good idea and are there tax implications? Lisa Greene-Lewis, CPA and TurboTax expert is here with us right now. OK, so what happens if I need the money, Lisa, and I dip into an IRA or a 401 ? LISA GREENE-LEWIS: Yeah, so if you withdraw from your IRA or 401 and you're younger than 59 and 1/2, you will incur an additional 10% tax in addition to whatever your ordinary tax rate is when you file your taxes. TRACY BYRNES: Right, so it's the tax on the withdrawal plus the extra 10%. So you do get dinged twice. Can this affect your Social Security also? LISA GREENE-LEWIS: Yes, a lot of people don't realize this. And they could be younger than 59 and 1/2, and there's people that withdraw Social Security for certain reasons, maybe related to a disability or something like that. If that happens, it could make their Social Security taxable, depending on how much they withdraw. TRACY BYRNES: So if you withdraw before 59 and 1/2 you get this 10% penalty. If you take out this money, though, it could actually bump you into another tax bracket, couldn't it? LISA GREENE-LEWIS: Yes. It could also bump you into another tax bracket, having that additional money on top of, if you have Social Security or you're retired. A lot of people that are retired also do some work on the side or contracting. So it could have an impact on all of that income. TRACY BYRNES: Yeah, so make sure you think twice before you pull this money out. And as a big reminder, there was a little, dare I say, gift that we got during COVID. We were actually able to pull money out, weren't we, without this 10% penalty. LISA GREENE-LEWIS: Yes, without that. And also we were able to pull the money out and not have to recognize it in income in one year. You could divide it among three years. So that's one thing to keep in mind. If you did do that, this would be the second year. So you would just have to make sure you include a portion of that in your income. Now, if you were a previous TurboTax user, it's keeping track of that. And all of that will carry forward when you do your 2021 taxes. TRACY BYRNES: Don't be shocked when that big number shows up that you've forgot about. Because in theory, we pulled it in 2020, right? LISA GREENE-LEWIS: Right. TRACY BYRNES: Right, so it feels like a lifetime ago. All right, think twice before you pull money out of your retirement accounts if you do need it to pay off bills or debt, especially if you are under 59 and 1/2. Lisa Greene-Lewis, thank you so much for taking the time with us. LISA GREENE-LEWIS: Thank you for having me. [MUSIC PLAYING] ~~~...(read more)

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2022 Tax Tips: A Guide to 401k and IRA Early Withdrawal - Presented By TheStreet + TurboTax As the year 2022 begins, many individuals may find themselves in a tough financial situation due to the ongoing pandemic and its economic impact. In such circumstances, it may be necessary to dip into retirement savings such as a 401k or individual retirement account (IRA) to cover urgent expenses. However, early withdrawals from these accounts come with tax implications that need to be understood and considered. This article, presented by TheStreet and TurboTax, aims to provide a guide to navigating the tax aspects of 401k and IRA early withdrawals in 2022. Firstly, it's important to understand that both 401k plans and traditional IRAs are subject to penalties and taxes when withdrawn before retirement age. The general rule is that any withdrawal made before the age of 59 ½ will be considered an early withdrawal and subject to a 10% penalty, in addition to being subject to regular income taxes. However, there are a few exceptions to this rule. One such exception is the COVID-19 relief provision that was introduced in 2020. Under this provision, individuals affected by the pandemic were allowed to withdraw up to $100,000 from their retirement accounts without incurring the 10% penalty. This relief was extended through 2021, and while it hasn't been confirmed for 2022, it may still be available to those who have been financially impacted by the ongoing crisis. Additionally, there are a few other exemptions to the early withdrawal penalty that have been in place prior to COVID-19. These include using the funds for higher education expenses, medical expenses that exceed 7.5% of adjusted gross income, purchasing a first home, or in cases of total and permanent disability. Next, it's important to consider the tax implications of early withdrawals. Traditional 401k plans and IRAs are typically funded with pre-tax dollars, which means that withdrawals in retirement will be subject to regular income tax. However, early withdrawals are also taxed as ordinary income, based on the individual's tax bracket in the year of the withdrawal. It's worth noting that Roth IRAs have a different tax structure. Contributions are made with after-tax dollars, which means that withdrawals of contributions are tax-free. However, withdrawals of earnings before the age of 59 ½ are subject to both income tax and the 10% early withdrawal penalty, unless an exemption applies. To cover the tax liability arising from an early withdrawal, it's recommended to set aside a portion of the funds for taxes. Failure to do so may result in a higher than expected tax bill, which can further strain your finances. Lastly, it's important to mention that exhausting retirement savings early should be considered a last resort. Retirement accounts are designed to provide income during retirement and should be preserved as much as possible. If you find yourself in financial hardship, it's advisable to explore other options first, such as government assistance programs, negotiating payment plans, or seeking financial advice from professionals. In summary, early withdrawals from retirement accounts like a 401k or IRA can be a necessary step during financial hardship. However, it's crucial to understand the tax implications associated with such withdrawals. By familiarizing yourself with the rules and exemptions, as well as setting aside funds for tax payments, you can navigate this process more effectively. Remember, it's always advisable to consult with a tax professional or use trusted tax software like TurboTax to ensure compliance and optimize your financial situation. https://inflationprotection.org/thestreet-turbotax-present-a-comprehensive-guide-to-early-withdrawal-from-401k-and-ira-for-tax-year-2022/?feed_id=133134&_unique_id=64f75d91c227a #Inflation #Retirement #GoldIRA #Wealth #Investing #2022TaxTipsAGuideto401kandIRAEarlyWithdrawalPresentedByTheStreetTurboTax #401k #filingtaxes #retirementinvesting #retirementplanning #RothIRA #rothiraexplained #rothiraforbeginners #rothirainvesting #rothiravs401k #rothiravstraditionalira #Taxfiling #taxsoftware #taxes #taxes101 #taxes2021 #taxes2022 #TheStreet #turbotax #turbotaxvideo #turbotaxvideos #turbotax #turbotax2021 #turbotaxtutorial #turbotaxvideo #turbotaxvideos #TraditionalIRA #2022TaxTipsAGuideto401kandIRAEarlyWithdrawalPresentedByTheStreetTurboTax #401k #filingtaxes #retirementinvesting #retirementplanning #RothIRA #rothiraexplained #rothiraforbeginners #rothirainvesting #rothiravs401k #rothiravstraditionalira #Taxfiling #taxsoftware #taxes #taxes101 #taxes2021 #taxes2022 #TheStreet #turbotax #turbotaxvideo #turbotaxvideos #turbotax #turbotax2021 #turbotaxtutorial #turbotaxvideo #turbotaxvideos