SEP IRA

Archive for April, 2006

Question: What percentage is the penalty for cashing a SEP IRA?

I’ve recently qualified for profit sharing. I received a check, which I was originally to deposit into a new SEP IRA. I’ve since decided to cash the entire check (as others at my place of employment have done) to wipe out the majority of my debt. What is the penalty fee? I thought it was 25%, my coworker said her penalty was 10%. Would there be another fee as well? Please advise.

Answer: The Penalty portion of it is 10%

Plus you’ll pay Federal income tax on the money as ordinary income. Depending on your situation, that could add anywhere from 0% to 35% tax, in addition to the 10% flat rate penalty.

There may also be state and local taxes.

Generally, when someone cashes out a retirement account, the plan administrator with withhold 20% for federal taxes, plus whatever the state mandates (which could be 5%, bringing the total withheld to 25%, which might be where your co-workers are getting that figure.)

Keep in mind that this is not the actual cost, it is only an estimated withholding. When you file your tax return, you’ll have pay the actual amount and the 20% withholding will count as payment, just like the money withheld from your paychecks.

Rifles of the IRA

Question: SIMPLE IRA from a Former Employer?

I quit my job in October and was wondering if my former boss is still required to make his end of the Contribution for 2009. He typically makes his Contribution for the previous year in April, but I wanted to transfer the money into a ROTH IRA. Does anyone know the rules or have any suggestions?

Answer: That would be spelled out in the plan documents, which govern your SIMPLE IRA. Call your boss, your plan administrator, or your HR dept.

Key Investments for Middle-Class Families

Question: Can you start a trust SEP IRA account to run a real estate investment from? Like to pay upkeep, taxes, collect?

rent?

Answer: You might be able to do a self directed IRA for rentals, but make sure you have everything crossed and dotted. See your tax professional.

Can I borrow money from my properly structured Tax Free Income Retirement Plan