In 2015, I withdrew $110K to pay off credit card debt and to put towards a down payment on a new house I am building. I was doing a preliminary run of my 2015 taxes and am showing $25K owed to Federal and $5K to State. When making the withdrawal, they withheld $22K and I knew about the 10% penalty, but I was not expecting my taxes owed to be this much. I am 48 years old. My question is can I roll this into a new account, IRA, etc. vs. paying $30K in taxes. Any guidance would be appreciated!!
When you take a distribution from your retirement plan the monies are subject to ordinary income taxes. Given the amount you withdrew, even though some was withheld for taxes, it may have moved you to a different tax bracket thus the additional taxes that are due. Also, you are younger than 59 ½ years old thus the 10% penalty. If you have had the money longer than 60 days you cannot roll it into an IRA to avoid taxation. If it has been less than 60 days then yes, you can roll the money into an IRA.
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You're able to put back or correct a distribution into a retirement plan within 60 days. The tax surprise was most likely from taking a distribution and thus increase in income and then the trigger of a higher tax bracket
If your $110k distribution was made within the past 60 days you may role the $110k into a traditional IRA and avoid the income tax and penalty consequences. Your employer properly withheld 20% from your distribution. They have sent that to the Government so the only way to get it back is to file your 2015 Form 1040. You don’t have to roll the entire amount into an IRA. For example, you could role the net amount you received. But the $22k you do not roll into an IRA will be taxable.
Changing the subject, from what little I gather from your question you have made some classic financial planning mistakes; credit card debt, early distribution from a retirement account. You should consider hiring a fee-only financial planner to help you with your financial decision making so that you can enjoy a retirement free from financial worry.
Hope this helps.
The amount of tax you would owe for a distribution from your 401(k) would only be an estimate, since it can't be known what your actual marginal tax bracket would be at the end of the year. You had 20% withheld, as is standard, but if you had other income (which it appears you must have) then such a large distribution could move you into a higher tax bracket. This appears to have happened to you.
As for paying it back into the account (or into another IRA account), that can only be done within 60 days (unless completed using a loan provision). If you are within 60 days of the distribution date, and are able, then open an IRA, and deposit as much as you can back into it. Beyond that, you may still be able to make a deductible contribution to an IRA account for 2015 (check with your CPA to verify if you are eligible as you can be "phased out" due to income limits), but it will be limited to $5500 if eligible.
If there is a lesson to all of this, it is to check with your CPA to verify all the impacts of your choice before you execute. Some things can not be reversed.