From: lpb@florida.swdc.stratus.com (Len Bucuvalas)
Newsgroups: misc.taxes,misc.invest
Subject: Re: New 20% Withholding TAX Steals From Pension Distributions
Date: 2 Oct 92 21:41:32 GMT
Distribution: usa
Organization: Informed Consent

In article <1992Sep21.031427.15885@infocomm.com> mark@infocomm.com writes:
>In article <1992Sep20.210456.7175@access.digex.com>, breinhar@access.digex.com (Robert B. Reinhardt) writes:
>> ================================================================
>> I'm wondering what the rest of you think about this new tax law
>> that's going to screw the taxpayer some more...
>> 
>> Under legislation effective Jan. 1, 1993, any lump-sum distribution
>> from a company pension plan -- generally made to someone who retires,
>> resigns, or is fired -- will be subject to a 20% witholding tax if
>> the check is paid directly to the employee.  The result of what
>> critics call a trap built into the new witholding law could be more
>> taxes owed on April 15, 1993.
>> 
>> The new witholding requirement means that if the full amount isn't
>> rolled into a new plan, 20% will be witheld just in case the money
>> is never rolled into a plan.
>> 
>> This may not seem unreasonable, but the problem is that IF THE FULL
>> AMOUNT ISN'T ROLLED INTO THE NEW PLAN, THE 20% THAT HAS BEEN
>> WITHHELD TO PAY TAXES IS ITSELF TREATED AS TAXABLE INCOME. [[ Even
>> if the person invests the other 80% that they received in the
>> distribution check to a qualified IRA in the correct amount time,
>> that other 20% is still always taxed as income, since it was not
>> invested in the new account along with the other 80%. ]]
>
>If, however, you invest the 80%, plus an amount equal to the amount withheld,
>of other funds into a qualified IRA, I suspect that you could validly avoid
>this "trap".  The only trap you would then be in would be that the government
>would then have all of that tax prepaid by you.  If this prepayment were
>substantial, I'd argue that this could be used to offset any other estimated 
>tax, or to justify 99 exemptions for some time.
>
>On the other hand, if you don't end up investing the amount disbursed into a
>qualified IRA with in the correct time period, the 20% is likely MUCH less than
>the amount of tax which will likely be owed, since these types of conversions
>of retirement funds tend to be accompanied by a 10% tax penalty, plus full tax
>as ordinary income.

Yes true enough BUT, wasn't the penalty 10%? And then the only
penalty was that you had to pay 10% off the top to the FEDS.
Now they wanat 20% off the top?!?! AND they want to tax the
20% penaly too?!?! This to me, seems criminal. If we allow
them to do that (assuming I understood this correctly), then
will they tax our taxes? Will we eventually see a Tax on
Income Tax?

>
>--
>Mark Pizzolato - INFO COMM Computer Consulting, Redwood City, Ca
>PHONE:	(415)369-9366	UUCP:  decwrl!infopiz!mark or uunet!lupine!infopiz!mark
>DOMAIN:	mark@infocomm.com

Len
--
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The accountability of government has gone to the point where the very
use of the law is the instrument of illegality.
		-- Ralph Nader @ Harvard Law School, 1/15/92
From: fish@hpscit.sc.hp.com (John Fisher)
Date: Tue, 29 Sep 1992 23:40:17 GMT
Subject: Re: any screenwriters out
Organization: Hewlett-Packard, Santa Clara, CA