SEP IRA

Posts Tagged ‘taxes’

Question: Old people say they are on a fixed income, could they mean they are getting 50K month in income?

If it’s from an annuity or a pension it would be FIXED.
Also money from CD investments, and dividend paying stocks would be fixed.
So why are all these old people complaining about being on a fixed income?

Why don’t they just say all they have is social security?
It would make it much more simple to understand.

When I think of fixed income for some reason I see vairous amounts of retirement accounts that have been well invested and planned with products that pay steady income. I see pensions and RMD’s out of ira accounts.

Fixed income to me means well invested wealth that is coming in.
Why does it mean to old people that they have nothing to their name.
Is it an expression?

Isn’t everyone that is retired on a fixed income.
Even if you are sitting in stocks, you are probably following a certain rule such as 4% out a year, and adjusting for inflation.
Thats’ Fixed.
Even ss gives you an inflation adjustment. You follow the same number for your retirement.

Answer: A fixed income generally means you cant increase your income through job changes, promotions and performance raises and bonuses. In retirement you’re generally more in a spending phase than a savings and investment phase. Generally you get only cost of living raises and whatever your savings and investments return, which is probably less than it was before retirement because you cant afford to take as much risk. And then there is inflation and maybe taxes. Health care costs can be higher too. If one has saved and invested well and keeps costs low they can live well in retirement though.

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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