Like the title says, from the filing process and tax questions to tax policy and reform, you can search and share All Things Tax here. This is the place to find answers to all your general questions that don't fall under the other categories. And just a reminder: questions about software or online filing should be posted in DIY Products.
08-08-2017 07:20 PM
Hi. I in the past I worked with the boilermakers for 3 years. I finished working for them a year and a half ago.
I recently received a member benefit statement from them. In the line that says... Total pension contribution received prior to this period is... 52,826.27
I logged in my boilermaker account and it says that if I would take the money now I would only get 34.000$.
I know that the government is taking 30% for taxes.. My question is... Is the boilermaker taking the 30% off ? That is why I only get 34.000?
Or will I still have to pay 30% of the 34.000?
By the way I am 41yo. And I don't work for the boilermakers anymore. That's why I will take the money now.
08-09-2017 03:33 PM
Welcome to the H&R Block community.
I apologize for the delay as I am usually on here every day. I'll gladly help you out.
So when you have money in a retirement account and you take a distribution before age 59 1/2 you'll be looking at the federal income tax plus a 10% early withdrawl penalty.
What happens is the bank that you have the account with will withhold 20% for the federal income tax, and that's standard practice. They may also withhold an extra 10% if you will be subject to the 10% penalty or if you live in another country.
You should not have to pay any additional tax on top of the withholding when you complete your tax return. Keep in mind though that the amount due will be determined by the overall outcome of your tax return, so once your deductions, exemptions, and credits, as well as any withholding you had from jobs have all been taken into account you may actually get a refund of some of that withholding from the pension income.
The federal income tax is not a flat 20% but rather is calculated on a graduated scale, so the first so much of the income is actually taxed at somewhere around 10%, the next so much at about 15% and the next so much at about 20%, and so on until you reach the percentage that represents that tax bracket you're in and the last little bit of the income is taxed at that rate. So if you're in the 25% bracket for instance then all of your non-passive income will be taxed at 25% or less. This is a positive as well because it means that you will not necessarily owe the entire 20% that was withheld for the income tax.
Also, the 10% early withdrawl penalty can be avoided by taking your distribution in substantially equal payments over a minimum of five years or until you reach age 59 1/2, whichever comes first. So if you have $120,000 in savings and you need all of it over the next short period of time then take a $24,000 distribution each year for the next 5 years. There are other exceptions to the 10% penalty as well, including when you use your retirement funds for medical, education, and first-time homeowner expenses.
If you have any other questions I'll be glad to help.
Senior Tax Advisor (Tampa, FL)