BOGUS “Penalty” to Have My Money!
This is a very hot topic for me but it does not seem to be for others. People who invest seem to be immune to this 10% tax “penalty” that it’s almost a non-issue until they need the money. Even then, they just pay it, think it’s crazy, but don’t do much about it.
Maybe it bothers me more because I am a control freak about my money. My kids have nicknamed me “Mr. Crabs” in relation to the character on Sponge Bob.
Why a tax “penalty”?
So who made this rule regarding a tax “penalty” associated with your money and why? Taken directly from the IRS website, here is your answer:
Topic 558 – Additional Tax on Early Distributions from Retirement Plans, Other Than IRAs
To discourage the use of retirement funds for purposes other than normal retirement, the law imposes a 10% additional tax on certain early distributions from certain retirement plans. The additional tax is equal to 10% of the portion of the distribution that is includible in income.
The government made the rule so it would force you to save. Apparently, you put money into a 401K or IRA is not proof enough that you are responsible enough to save. They have to go one step further and make sure you never become irresponsible and withdraw that money for anything but retirement. If you should need that money for anything other you must prove it, they will make the decision if your need is great enough, if not, slap you with the 10% tax.
Were you also thinking this was a “penalty”? Everyone calls it a “penalty” but in reality, it is a tax, a tax because there is no way to get a tax reversed via a lawsuit with the government. However, you can fight a penalty and that is subject to the possibility of being reversed.
Who gets this tax money?
Now that you know it’s a tax, then the next logical question is where does it go? To the U.S. government! Yes, that is right, you work for that money, decide to skim by so you can save a little for retirement, get in a pinch, need the money then get penalized for using your own money. They just take it as your punishment.
It gets better! The penalized 401(k) fees were at almost $60 billion in 2010, reports online financial firm HelloWallet. What a brilliant tax! This is an astonishing number, money that could have gone to pay off people’s debt. In most cases, 75% of people are withdrawing from retirement accounts to pay for the debt.
What does the government do with it? I would love to know the answer to that question and if you know it please share below in the comments. I have looked and looked but do not see any tracking of it. You know for sure it’s not reducing your taxes or the national debt. Those two things are still going strong.
Again, it’s YOUR MONEY and this tax needs more attention before any permanent decisions are made to put money into something they can control. Are you tired of giving up control? If yes, then another financial bridge needs to be built. The Infinite Banking Concept is just that bridge. You have control, guaranteed growth, and no penalties to use your money.
Gain control today and give us a call to find out more – 701-751-3917.