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Itemized Deductions Schedule-A


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Old 04-09-2016, 04:56 PM
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401k taxes offset with energy credit?

I file jointly with my wife, and we have two children. I am the only income producer, and I make $70,000 per year. The last few years, my standard deduction has been more than itemizing, though we own a house. In fact, we don't even receive the full child tax credit. We are now building a house and thinking about going with geothermal, which would give us a $6,000 non-refundable tax credit, but obviously that wouldn't do us any good since we're not even getting the full child tax credit. However, I'm wondering if taking some funds out of the 401k would produce enough taxes to be able to get that $6,000 in credits and, if so, how much I'd have to take out for the full $6,000. We need some of these funds for the down payment any way, so I was going to use the 401k as a source either way. I just want to make sure the geothermal will wind up only costing $5,000 more instead of $11,000 more (if I wasn't able to use the credit). Thanks!



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Old 04-10-2016, 03:03 AM
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I file jointly with my wife, and we have two children. I am the only income producer, and I make $70,000 per year. The last few years, my standard deduction has been more than itemizing, though we own a house. In fact, we don't even receive the full child tax credit. We are now building a house and thinking about going with geothermal, which would give us a $6,000 non-refundable tax credit, but obviously that wouldn't do us any good since we're not even getting the full child tax credit.====>unless your magi is above $110K then you may claim your child tax credits on your two children; The child tax credit is reduced if your modified adjusted gross income is above certain amounts, which are determined by your tax-filing status. In your case,$110K for married couples filing jointly.for child tax credit, The child must have lived with you for more than half of the tax year for which you claim the credit.; To qualify, a child must have been under age 17 (i.e., 16 years old or younger) at the end of the tax year for which you claim the credit; the child cannot have provided more than half of his or her own financial support during the tax year.

However, I'm wondering if taking some funds out of the 401k would produce enough taxes to be able to get that $6,000 in credits===>It depends on other deductible items on your 1040; however, in general I fyour marginal tax rate is 15%bthen your tax liability goes up by $900;$6K *15%.

and, if so, how much I'd have to take out for the full $6,000. We need some of these funds for the down payment any way, so I was going to use the 401k as a source either way. I just want to make sure the geothermal will wind up only costing $5,000 more instead of $11,000 more (if I wasn't able to use the credit).=====>as you know, Taking money out of your 401(k) plan before you turn 59 1/2 years old isn't the best financial decision because of the early withdrawal penalties; However, if you simply don't have another option for funds, the withdrawal might be a viable solution to your funding needs. You'll receive a Form 1099-R that shows how much you took out. Figure the penalty or document your exception on Form 5329, and include it with your Form 1040 when you file your taxes. Your tax liability goes up by $6k and also you need to pay penalty on $6k.The penalty equals 10 percent of the amount of the distribution not exempt. For example, if you take a $6k distribution but $6k is not exempt, you only owe a $600 penalty because $6k is not exempt.you need to enter the amount of federal income tax withholding from your distribution found in Box 4 of Form 1099-R on Line 62 of Form 1040. This amount decreases your fed tax bill because it's already been taken out of your 401K distribution. you can not claim the penalty of $600 on your return. So you may presume that at least $600 of the nonrefundable energy/power credit will be reduced by $600. Millions of people including you rely on this nest egg to help them through their retirement years. But what if real-life needs intrude and the holder must withdraw funds from the 401(k)?
Investment experts generally frown on early withdrawals, but is there ever a time when it is wise to take money out of this tax-free investment? The purpose of your 401(k) plan is to set aside moneyyou?re your retirement, but if you have debts with high interest rates, you may be tempted to withdraw funds early to pay off the debt. Withdrawing money from a 401(k) to pay off debt is generally considered unwise because early withdrawals are subject to a tax penalty. Reducing contributions or taking a 401(k) loan to pay debt may be preferable to withdrawing funds. If you?re looking for a way to borrow money, your eyes may turn to your hefty 401k retirement savings.
After your 401k has reached a certain amount, most 401k plans allow you to take out a loan of up to
50% of what you?ve contributed. A 401k loan seems attractive because there?s no credit check, you
receive a low interest rate, and you can pay the loan back over a maximum of five years. Most banks
won?t give you as good a deal. Then again, most banks aren?t loaning you money that?s yours anyway.
Even though it seems like a good way to cover some expenses, there are several potentially expensive
drawbacks to 401k borrowing.

You can?t contribute until you repay; Your take home pay gets reduced; When you invest in a 401k plan, the money hasn?t been
taxed yet. So, when you go to repay your 401k loan, you have to do it with
income that?s already been taxed. Then, when you finally make a
401k withdraw in retirement; the money will be taxed again. Ultimately, that
money is taxed twice.



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