So it looks like I won't be able to enroll in any classes at my alma mater until 2013 Fall semester. Why? 1. The Americorps Education credit is counted as taxable income *the year you use it.* and 2. I am being forced to close out my 401k with the oil and gas company I worked at *by* July 15.
If I use my Education Award *and* rollover my 401k into my ROTH (which really is my only choice since I don't have a 401k with my current employer) that will add over $10,000 in taxable income for 2012. That means I would lose my "savers credit" for putting money into my ROTH, and more than likely bump me into another tax category.
I can't enroll in the Spring 2013 semester because they want you to have it paid mostly by December. So that money would be considered taxable income in 2012, even though it was used to pay for education in 2013. (This is what I ran into for tax year 2011 - I'd paid for my Spring 2011 classes in December, 2010, so all my scholarship money received in 2011 became taxable!)
The savers tax credit is worth about $700 for me. So, I could lose that $700 PLUS have to pay more in overall taxes. Unless I delay taking the classes for one-year. That would mean I'd have 3 years to complete the requirements for renewing my certification. Doable, but much more difficult than spread out over 4 years.
Ugh!!! I do have to count my blessings though ... if my principal wasn't forwarding my mail to me, I would not have even KNOWN about this until long past the deadline (July 15.) Then I would've had no choice on how the matter was handled. (The letter says something about how if you miss the deadline to make a decision, that the account will be handled according to IRS rules - whatever that means.)
I do have to wonder why they are forcing this now. It hasn't even been a full 4 years since I was laid off. I wonder if maybe the company is closing its doors, and so they are having to close out all the 401k accounts??
In thinking about it more, this actually is a good thing to do this now - before I've committed to classes and asked for payment from my education award. At least this happened before the tax consequences would be set in stone. And... I guess not getting the summer school money this summer is turning out to be a blessing too ... sort of. That plus the rollover would have pushed me over the tax savers credit (but not into a different tax category.)
*Yes, I could just pay for the courses with my own money, but I'd only be able to afford one course and then my savings would be pretty much gone. With having car payments now and higher auto insurance, I really don't feel good at all about that idea.
**The deadline for applying for Fall 2012 classes is July 15. I was actually working on that application this weekend, and only needed a couple pieces of information before pushing submit and paying the $60 application fee. So, I'm glad I found this now rather than later.
***ETA - Question?? Rolling over my 401k into my ROTH - will that affect how much I can contribute to it for the 2012 tax year? I already have $700 for 2012 in it, and the 401K would put it into the $5500 range, plus the amount I would otherwise contribute throughout the year.
Frustrated (Tax related)
July 1st, 2012 at 07:05 pm
July 1st, 2012 at 08:12 pm 1341173546
Rollovers do not count towards contribution limits.
It's probably a good idea to then convert it to your ROTH, anyway, but you can do a little at a time to keep the savers credit.
July 1st, 2012 at 08:30 pm 1341174654
It would be so much easier to just LEAVE it where it is, but that isn't an option. (I have another 401k with my employer that I left in 2006 .. luckily so far they haven't made any intimations of making me move it somewhere else. That's where 60% of my retirement money is ...)
July 1st, 2012 at 08:33 pm 1341174797
You can open IRA's online with Vanguard and probably other no load mutual funds.
July 1st, 2012 at 09:05 pm 1341176717