Neil &  Company CPAs, PC

A Professional Corporation

1184 North 15th Street, Bozeman, MT 59715

 

Phone: 406-587-9239

 

July 2019

July 2019 Client Profile

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Laura is nearing her planned retirement at age 66 and she is considering cashing in her entire 401(k) plan in one lump sum. What are the pros and cons of taking this money all at once?


If Laura needs the money for medical or other emergencies, a lump sum may make sense. Otherwise, she will lose potential tax-deferral benefits unless she puts the funds back into another tax-deferred account within a short time period.


Another potential disadvantage is how a lump sum distribution can create a larger tax bill. The larger the lump sum, the greater the chance she will move into higher state and federal income tax brackets. Also, Laura will pay more for Medicare Part B if her income for the year exceeds a certain level. In 2019, taxpayers pay $135.50 for Part B insurance if they file tax returns jointly and their income is $170,000 or less. The threshold for taxpayers filing individually is $85,000, so a large lump sum can easily put her income above these thresholds.


Client Profile is based on a hypothetical situation. The solutions discussed here may or may not be appropriate for you.


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