Dear friends of RC Jones & Associates
Normally, it is not advisable to take withdrawals from your qualified retirement plans and IRAs prior to age 59 1/2. Not only does this erode your nest egg, but you're generally hit with a 10% penalty tax on top of regular income tax.
However, you may be facing a cash crunch during this recession with no place else to turn. In that case, you can minimize your exposure to income tax and penalties if you qualify for one of several tax-law exceptions. Here are five prime examples.
1. No penalty will be assessed if you arrange to receive “substantially equal periodic payments” (SEPPs) from a qualified plan or IRA based on your life expectancy or the joint life expectancies of you and a designated beneficiary. The payments must last for the longer of five years or until you reach age 59 1/2.
2. If your family has been hit with some unexpected medical bills, you can tap into your plan or IRA to pay for medical expenses. The withdrawals are exempt from the penalty to the extent that the cost qualifies for the medical expense deduction (i.e., unreimbursed medical expenses above 7.5% of your adjusted gross income).
3. The tax law includes a special tax break for "first-time homebuyers." You don't have to pay the penalty on pre-age 59 1/2 withdrawals if you take money out of an IRA to buy or build a qualified home. Similarly, you might use IRA funds to help your child buy a home. Caution: There’s a lifetime dollar cap of $10,000 on this exception. (Don’t forget about the $8,000 credit that is currently available)
4. Distributions from an IRA made before age 59 1/2 won’t trigger the penalty if the funds are used to pay for a child's qualified higher education expenses. This includes tuition, books, supplies, etc. -- even room and board if your child is a full-time student.
5. If IRA funds are used to continue health insurance coverage under COBRA, early withdrawals are exempt from the penalty. In a new field advice memo, the IRS says self- employed individuals are also exempt if they can show they would have received unemployment benefits for 12 weeks if they were an employee.
Everyone's situation is different and early withdrawals from retirement accounts should be viewed as a last resort. We can analyze whether you should take an early withdrawal or utilize other resources. Call us at (816) 792-99666 to arrange a consultation.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
Thursday, July 23, 2009
BEAT THE NEW *WORK OPPORTUNITY TAX CREDIT* DEADLINE
Dear friends of RC Jones & Associates
The new economic stimulus law enacted earlier this year -- the American Recovery and Reinvestment Act of 2009 -- expanded the Work Opportunity Tax Credit (WOTC) to include more workers. Now employers can claim the credit for certain unemployed veterans and "disconnected youth" hired in 2009 and 2010.
But you must request certification of these workers by Aug. 17, 2009. In a new Notice, the IRS has established this as an extended cutoff date for making requests to the appropriate state workforce agency.
For this purpose, an "unemployed veteran" is defined as someone who has been discharged or released from the military during the five years preceding the hiring date and who has received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A “disconnected youth” is a person who is between the ages of 16 to 24 on the hiring date and has not been regularly employed or is attending school and meets other requirements.
The WOTC is generally equal to 40% of the first $6,000 of the worker's first-year wages, assuming the worker completes a minimum of 400 hours of service. Thus, the maximum credit per targeted worker is $2,400. The WOTC is reduced to 25% of qualified wages for workers who complete less than 400 hours of service, for a maximum credit of $1,500 per worker.
Remember that the WOTC is also available for workers in 10 other targeted groups. Certification requirements apply to workers in all the other groups except employees who were Hurricane Katrina victims.
The WOTC can reduce your company's tax bill on a dollar-for-dollar basis. RC Jones & Associates can provide whatever assistance you need in this area. One of our expert staff will be glad to answer all your questions; simply call us at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
The new economic stimulus law enacted earlier this year -- the American Recovery and Reinvestment Act of 2009 -- expanded the Work Opportunity Tax Credit (WOTC) to include more workers. Now employers can claim the credit for certain unemployed veterans and "disconnected youth" hired in 2009 and 2010.
But you must request certification of these workers by Aug. 17, 2009. In a new Notice, the IRS has established this as an extended cutoff date for making requests to the appropriate state workforce agency.
For this purpose, an "unemployed veteran" is defined as someone who has been discharged or released from the military during the five years preceding the hiring date and who has received unemployment benefits for at least four weeks during the one-year period ending on the hiring date. A “disconnected youth” is a person who is between the ages of 16 to 24 on the hiring date and has not been regularly employed or is attending school and meets other requirements.
The WOTC is generally equal to 40% of the first $6,000 of the worker's first-year wages, assuming the worker completes a minimum of 400 hours of service. Thus, the maximum credit per targeted worker is $2,400. The WOTC is reduced to 25% of qualified wages for workers who complete less than 400 hours of service, for a maximum credit of $1,500 per worker.
Remember that the WOTC is also available for workers in 10 other targeted groups. Certification requirements apply to workers in all the other groups except employees who were Hurricane Katrina victims.
The WOTC can reduce your company's tax bill on a dollar-for-dollar basis. RC Jones & Associates can provide whatever assistance you need in this area. One of our expert staff will be glad to answer all your questions; simply call us at (816) 792-9966.
Very truly yours,
Robert C. Jones
www.rcjonesinc.com
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