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Early pension payout vestment percentage?
I recently left my job (March 2010) of 6.5 years for a better opportunity. I became 100% vested in my company's Profit Sharing Plan and Trust on Jan 1 2010. I was given my most current Plan statement on my last day. However, the most current statement is from the Plan calendar year of 2008. My former employer states this is because she has yet to file her 2009 business taxes, having an extension until October 2010. She also stated that she won't know if she is going to make the 5% (of my 2009 wages) contribution until that time. As of my 2008 statement I was only 80% vested and the statement reads "Total account balance $6400 - Total Vested Amount $5100" (round figures - and not a sizable amount).
Q1) Regardless of whether or not she has filed her 2009 taxes, aren't I 100% vested and eligible for at least the full 2008 amount of $6400?
Q2) I want to take the payout option to clear about $3000 in debt. So what am I looking at? 20% minus $6400 = 5120. Given that amount would be added to my annual income for 2010 (total projected net of $38k) how much of that $5120 should I set aside in savings to compensate for the additional 10% I will be taxed? Can I pay my 3000 in debt, save 2120, and be okay? I am 40, married filing separately, no dependents.
Essentially, all I want to do is pay off my debt and be sure I won't have dug myself into a big hole next tax year.
Please advise, awaiting responses anxiously :) Thank you!
4 Answers
- 1 decade ago
Q1) Yes. If you have been with the company through the required amount of time to fully vest, you are eligible for a payout of the full amount.
Q2) My understanding is that there is a mandatory 20% Federal Withholding rule in addition to the 10% penalty and that these will be / should be withheld prior to the funds being disbursed to you. Your State may also require a mandatory withholding.
I would recommend that you contact the company administering the pension plan to determine what percentages they would be withholding (and depositing) so that you can arrive at the desired end result and not come up either short on taxes at the end of the year or taking too high or too low a payout/disbursement for your needs.
- efflandtLv 71 decade ago
There may be earnings, so figures may vary. But assuming the $6400 distribution and 20% mandatory withholding, you would receive $5120. You would either owe another 5% ($320) at tax time if your marginal bracket is 15%, or 15% ($960) in 25% bracket, for tax and 10% penalty. So consider that depending upon your W-4 allowances and normal tax due/refund.
- Sharon TLv 71 decade ago
Q2: If $38K is your total income including this distribution (and before standard deduction and personal exemption), you will owe 15% tax plus 10% penalty. If this is your net income, you will owe 25% tax plus 10% penalty.
- WhitneyLv 45 years ago
You paid SOME of the tax when you received the money. You must still pay the rest. When you filed (if the accountant did it correctly), you received credit for the tax that you already paid and most pay ONLY the remaining portion. You are not being taxed again. The total tax, both what was paid already and what must still be paid, is ONLY the tax and penalty computed when filing, not the sum of that plus the amount earlier.
