Thomas and Dave work through a sticky tax situation in which Thomas owes nearly $50,000 in back taxes and wants to pull it out of his 401k.
QUESTION: Thomas has to take $50,000 out of his retirement savings to pay the IRS. He’s paying $25,000 in back taxes and is setting aside the other $25,000 for taxes and penalties for this year. He wants to invest the remaining amount somehow so he can keep it. How can he do that? He makes $70,000 a year.
ANSWER: You’re in a 25% tax bracket, so put $35,000 will cover the federal part, and $5,000 more will cover your state income tax. If you’re going to pay the penalties, you’re going to pay them … there’s no way to get around that. So the sooner you pay them, the better. Wait until January and pull just enough to pay it, that way the money can sit there for the entire year. Next December, pull enough to pay your taxes. This January pull enough to pay the IRS.