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Anyone else heard this?

October 21st, 2008 at 12:33 am

Have I heard rumblings that our two presidential candidates have talked about DEcreasing taxes paid on retirement accounts for a few years to try and help retirees who have lost lots of money in the last few months?

Does that mean I will be able to take my retirement funds out of the market and pay minimal tax penalties...then put them back into the market and later when I retire I don't need to pay tax??

3 Responses to “Anyone else heard this?”

  1. fern Says:

    Obama (not McCain) has proposed letting people withdraw 401k or IRA money without getting hit with the 10% IRS tax penalty for early withdrawal prior to age 59 1/2.

    However, IMO, this is still a BAD idea becus you will still have to pay the 20% federal income tax. so whether you withdraw the $ now, under Obama's plan, or after you retire, you still pay income tax on a tradiional IRA/401k. (unlike a Roth IRA).

    And withdrawing the $ now is the worst possible timing, with the stock market still in the tank. So you'd be selling at a loss, quite likely.

    It's really not that good a deal. It's only intended for people who are in such dire financial straits that if they had to tap their retirement funds, they'd get a small break on the penalty tax.

  2. cptacek Says:

    Gamecock, if what you want to do is change your asset allocation, you don't need to cash it out (and pay taxes/penalties on it) and then put it back in later. You should be able to transfer the funds from the mutual funds/stocks you have now to something else (like bond funds, more conservative stock mutual funds, or cash). I wouldn't do it, though because of what fern said (selling at a loss).

    Retirement accounts are just buckets of money you treat differently for tax reasons. If the money is designated as an IRA or a Roth IRA or a 401k or a taxable mutual fund or whatever, you can change WHAT the money is invested in as long as you keep the tax designation the same.

    For instance, in my 401k plan at work, we can buy different mutual funds or put money in a money market account, and all of it would be under the umbrella of "401k". I could sell one mutual fund and buy another in the plan, or sell all of mutual funds and put all that money in the money market account, etc., and it is still "in my 401k".

    I doubt that once you take it out of the retirement account you would be able to put it back in.

  3. gamecock43 Says:

    I was just thinking that: If pretax dollars were invested under the assumption that when the money is withdrawn, I will pay 7% (I don't know what the tax amount really is) tax on it. If there is a small time frame when I can pay 4% taxes for withdrawing the money- I might as well withdraw during that time frame. pay the 4% and re-invest the money in the market again...I would save myself that 3%. But this all seems somewhat complicated and maybe I should just do it the way the system was set up to handle it.

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