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One Example of Simple Tax Planning
January 11, 2021 at 11:54 AM
by Peter O'Hara

"What we know is a drop, what we don't know is an ocean." - Isaac Newton Too many folks wait until the winter before they look at their tax obligations. Even worse, too many even among our clients wait until that season before they speak with us in any kind of proactive way. That's a problem, and it could be costing you some serious savings. Here's an example: Let's say that you were considering taking money out of a pension (401k) to finance the down payment on a house.  It's quite a common maneuver. But let's say next that you do this withOUT discussing it ahead of time with a professional. That could be a four (or five) figure mistake. If you were to come into our offices before such a move, I would ask you a few easy, but very important questions, and then (depending on the answer) likely advise you to first roll the money ($10,000) into a Traditional IRA.  You could then withdraw the money at a savings of $1,000.00. This is because money used for a first home, up to $10,000, is penalty-free when taken from an IRA, but NOT a 401K.   Would you be pleased by that move? I'd guess "yes", especially if you knew about some other local folks I know of, who failed to plan. This couple just learned of the $41,000.00 penalty they had to pay for doing the same thing, but from their 401k. Ouch. Other "penalty-free" withdrawal opportunities (I should note here: these are NOT "tax-free", but penalty-free): * Unreimbursed medical bills -- The government will allow investors to withdraw money from their qualified retirement plan to pay for unreimbursed deductible medical expenses that exceed 10 percent of adjusted gross income. (401k or IRA)* Total and permanent disability (401k or IRA)* Health insurance premiums after 12 weeks of unemployment (IRA only)* Death (401k or IRA)* Higher education costs (IRA only) There are a few other obscure situations available, but again -- these decisions are best made under consultation. Now, I should say that there is no guarantee that you will save by speaking to us in advance.  But this I CAN guarantee: If you don't speak with us in advance, we won't have the chance to save you all we possibly could, on your 2017 taxes. We're a phone call (or email) away: (845) 242-2151 .


Pat O'Hara