Before you take anything out confer with a tax accountant. In general the 20% withholding is an estimate of what you will owe at the end of the year. The actual tax due both state and federal tax authorities may be less when all of your deductions and exemptions are calculated. Also the addition of this withdrawal adds to your salary income, and may increase your tax liability. Some recommended tax strategies: filing your return as married but filing single, so that only your income takes the hit and you put the three dependents on your return, and/or taking two distributions one in 2009 and one in 2010. Another strategy is you may be able to use income forwarding to reduce your tax burden. If you access my avvo profile, you will find my NYC contact information. I am available for consultation on tax planning and also do state and federal income tax returns at a competitive price.
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Mr. Sarno is licensed to practice law in NJ and NY. His response here is not legal advice and does not create an attorney/ client relationship. The response is in the form of legal education and is intended to provide general information about the matter in question. Many times the questioner may leave out details which would make the reply unsuitable. Mr. Sarno strongly advises the questioner to confer with an attorney in their own state to acquire more information about this issue.