we left our job last year, cashed our 401k out, so we could pay cash for a new house. So now that we did our taxes for 2015, that 401k money makes our income so out of whack we now have a huge bill. Is there anything we can do other than doing a payment plan?
I'm sorry to hear about your surprise tax bill. As mentioned above, there are multiple contingencies relative to your specific situation as to the best possible route. With the tax due date arriving I wanted to throw this idea your way for you to entertain. If you left your employer in 2014 then that means you had earned income. Perhaps you could set up two IRAs (for you and your spouse) and contribute $5,500 per person for a total of $11,000. This will reduce your income and help reduce your tax bill. I have not fully researched it, but logically speaking I’m not sure why you would not be allowed to do this. I could see the one obstacle being if your AGI was at $95k or $178k and one or both of you were participants in an employer-sponsored plan. Again, it goes back to your specific situation.
One thing to mention is that both you and your spouse should be able to avoid the 10% penalty for $10,000 each, for a total of $20,000, if you and your spouse did not own a home for a two year period ending on the acquisition of this home.
Hope this helps!
Likely there isn't much you can do, particularly if you are past 60 days from withdrawing from your 401K. My advice would be to speak with an accountant/CPA directly to make sure.
The IRS rule is if you haven't owned a home in the last 2 years or is a first time home buy you can take out early without the 10% penalty. You will still have to pay the taxes on the withdrawal but you can avoid the penalty up to a $10,000 withdrawal. Not sure why you would take the funds out to buy a home especially with mortgage rates sitting as low as they are currently. As far as the tax situation find a CPA and see if they have any suggestions because I am not aware of any way to lower your tax burden based on the information given.
First, I'm sorry to hear that you have the stress of a sizeable tax bill and that you may have received advice that was not truly in your best interest or at least did not fully explain the tax impact. I would recommend speaking to a CPA, your advisor and your lending institution to find out all of the alternatives to consider and determine the proper path. (Whether payment plan, loan, IRA contributions or other alternatives that may help mitigate the liability).
I sincerely wish there was a little more information to arrive at the best solution for the question. The option for a home equity loan with their existing banking relationship (or shop around for the best rates/closing costs) may be the best option to retire the tax debt. Ideally there is ongoing cashflow to pay off the liability (or other income opportunities and assets to do so).
Contact an enrolled agent with the IRS. If you've pulled money out of a 401(k) before 59 1/2 unless an exemption applies in your case, that's income. Your going to have to talk to someone (enrolled agent) about alleviating that debt or working out a debt payment plan with the IRS.
If this was a 'first time home buy' or it has been over 5 years since your last home purchase, the 401K articles could allow for the waiver of penalties. The hard part in answering these questions is EVERYONE's situation is different. Did you get a GREAT deal on the home? Not just an alleged good deal as stated by your real estate agent, but a GREAT deal? How old are you and your wife? Think of the IRS as the mortgage lender, and the payment plan the house payment. This is what I call "LIFE CHANGE ADVICE". My firm doesn't charge for this, and you can see just how valuable it is. You need to find a real Financial Advisor, NOT a salesman brochure dispenser.