The Finance Buff

We’ll use these two examples: Example A: You were affected by the COVID-19 pandemic and you withdrew $30,000 from your workplace retirement plan between January 1, 2020 and December 30, 2020. – Withdrawal spread over three years For our Example A, where you withdrew $30,000 from a workplace retirement plan and you’d like to spread it over three years, you only need to complete the parts called out in the red boxes. If you withdrew from a pre-tax IRA, not from a workplace retirement plan, enter the date and the amount on Line 2 instead of Line 1. For our Example B, where you withdrew $30,000 from a workplace retirement plan and you repaid it in full, in addition to filling out the same fields as in Example A, scroll down to Line 9 and Line 10.

It’s done by making non-Roth after-tax contributions to a 401k-type plan and then moving it to the Roth account within the 401k-type plan or taking the money out (with earnings) to a Roth IRA. Now we verify we’re taxed only on the $200 in earnings, and not on the $10,000 non-Roth after-tax contributions. It’s just as easy to report the mega backdoor Roth if you took the money out of the 401k plan and sent it to a Roth IRA. Now we verify we’re taxed only on the $200 in earnings, and not on the $10,000 non-Roth after-tax contributions.

Although the percentage loss in 2008-2009 was larger than in March 2020, my loss-to-income ratio was much lower last time. While our withdrawal rate is still low, it feels a lot different than having a positive cashflow outside your portfolio and covering all your expenses with it. Having a positive cash flow outside the portfolio is an open secret in the Financial Independence Retire Early (FIRE) circles. Despite all the headlines talking about saving 25x or 30x of annual expenses, it’s more for confidence than actually using the savings to cover expenses post-FIRE.

I received a state income tax refund last year because I had too much withheld in the previous year. When it says it "may be taxable" with a conditional "if" it means the tax refund dollars in box 2 on the 1099-G are NOT taxable if you didn’t deduct it on your federal income tax return. If your state income tax refund is $2,000 and you benefited from all of it, you include $2,000 as income in the following year. Re-doing the previous year’s taxes just because of a state income tax refund is a big headache if you do your taxes by pencil and paper.