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Angela

20% Withholding By Irs

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I am retiring in two weeks, age 58. My previous question regarded whether I can withdraw money from my 403B without a penalty, which you answered for me. (The financial rep didn't think I could do that. When I spoke to him today,

, he told me that 20% of any money I withdraw will be sent to the IRS for taxes. Is this true?

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Guest Joel

Did you not quote the law as provided and suggested to you by Michael? If you did then you taught your rep not to wing it!! If you did not provide him with the law then you are simply encouraging him to continue to be negligent and flippant.

 

Your distribution is only subject to regular income tax, not the penalty. 20 percent of the requested amont is required to be withheld because the requested amount is eligible for rollover treatment. You will use the amount withheld as a credit on your 2004 income tax return which you will file by April 15, 2005.

 

Peace,

Joel

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Guest Guest_Angela

Dear Joel,

Yes, I certainly did quote the information given to me by Michael. When I gave the rep that information, he looked at me and said, "Well, someone is certainly doing their homework." So a big thank you to Michael and Joel for helping me out.

He suggested I put my money in a "rap" account because you can switch more easily from one fund to another. It's run by Pershing. Ever heard of this? Good idea?

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Guest Joel

Angela: Please tell us: If this money is going to be rolled over to the new investment or if you will take a taxable distribution and then invest the after tax amount. How much money is involved? Describe your current 403b investment funds. Why is your rep suggesting a wrap account...are you displeased with your current 403b choices? Please be specific about your intentions so that we can advise you appropriately.

 

Peace,

Joel

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Joel,

I have about 70,000. in a 403 B. Most of my money is in Oppenheimer funds: Opp. Global, Main Street Fund, Small Cap Fund, Limited-Term Government Fund and Cap Appreciation Fund. I also have a small amount in Kensington Select Fund.

I am not planning on withdrawing any money for several years at least.

The rep is suggesting that I put my money in a wrap (it will still be a 403B) so that it's easier to switch money from one company to another.

He's suggesting the following:

$10,000--Oppenheimer Global

7,000-Pioneer High Yield

7,000-Kensington Strategic Realty

11,000-Washington Mutual

7,000-Oppenheimer Main ST. Opportunity

22,000-Hennessey Cornerstone Growth

7,000-RS Partners --Are there disadvantages to the wrap program. He said that it was the same except it makes it easier to move the money from one fund to another. Is this true? Is there anything else I should know about wraps? Thanks. Love you guys.

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Guest Joel

Hi Angela and thanks for writing,

 

Ask your rep to provide you in writing with the expense ratios for each of these funds. These are high cost funds. The wrap fee charged by the broker must be added to the expense ratios charged by the funds in order to arrive at total costs. Ask him to give you the total costs for the first year. I would be surprised if they do not add up to 3+ percent of your account balance on an annual basis. Ask him why now, upon retirement is he suggesting this wrap. Why didn't he suggest it to you a long time ago?

 

I would rather see you execute a Revenue Ruling 90-24 Transfer of these funds to the Vanguard Group and get more than 99.5 percent of your money working for you right out of the box. With this wrap proposal only 96-97 percent of your money is working for you. This is great for the 403b sharks but bad for you, the investor. You can do the same thing this commissioned sales rep wants you to do for about 20-30 basis points and no wrap fee. 20 basis points is one fifth of one percent. I would fire this rep asap!!

 

Peace and Hope,

Joel

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Joel,

Thanks for the advise. I just retired and took a well-deserved vacation. Now I'm back to deal with financial matters.

In reply to your question, my rep said that he didn't mention it before because I didn't have enough money. He said originally a person needed $100,000. to invest in the wrap, but they lowered the amount.

What is the 90/20 you mentioned? How do I do that? Do I go through the vendor? What is the advantage of if? Thanks for any info.

Angela

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