Help! Retirement nightmare and tax killer – Retired and $45 K due in income taxes!
I am retired, receive a pension income, debt and mortgage free and have a nice IRA. I found my perfect home in 2012 and applied for a mortgage. My application fell through at the last minute (four postponements) because of a “dispute” on my credit report. I decided to pay cash from my IRA knowing there would be high taxes due (28% rate), but knew I would qualify for an equity line of credit to pay the taxes as I have no debt and a good credit score.
Unfortunately, in 2002, I invested in a rental that I couldn’t sell and it continued to drain my IRA of $35K. I decided there was no option but to forego my perfect credit score and chose a deed in lieu of foreclosure in 2009. A “dispute” from this lender was noted on my credit report with the correct date of last delinquency being 2009. Fannie Mae will not approve a loan if a credit bureau reports a “dispute.”. Once this dispute was removed from my credit report, it knocked my score below the number that Fannie Mae would approve, and I was denied a loan. I didn’t want to lose this house, so I withdrew IRA money knowing the consequences of taxes.
Now, still debt free, I cannot get an equity line of credit or mortgage. The last lender (I started applying in January) was kind enough to share with me (others would not) that it was because my credit report stated from that lender involved with the deed in lieu of foreclosure reported a recent delinquency of September 2012. It was resolved in 2009! This date was changed when the dispute was taken off in 9/12. I requested this lender four weeks ago to correct this date and they assure me it will be resolved by March 29th. Once it goes to the credit bureaus, it will take time to process. When I reapply for a loan, that process will take up to 3 months. Taxes are due April 15th. There must be another option other than withdraw another $45K at 28% tax rate from my IRA to pay $45K owed for 2012 taxes.
The IRS has a payment plan, but I want to consider all other options first. I have a retirement nightmare. I appreciate all suggestions. Thank you!
Permalink Submitted by Alan - IRA critic on Sun, 2013-03-10 00:29
We really can’t help you here since your question relates to financing a tax bill and this site does not address financing questions. The only way it relates to your IRA is that if you have not done a rollover in the last 12 months, you could pay the tax bill from your IRA and if your credit is approved, you have 60 days to re deposit your money in the IRA as a rollover. However, meeting the 60 day deadline is far from a sure thing, and therefore I would not recommend you go this route. The IRS installment plan may be an acceptable solution with less risk, but can’t speak to other potential funding sources.
Permalink Submitted by Bruce Steiner on Sun, 2013-03-10 00:43
If you have sufficient income to make the installment payments, you might want to consider an installment payment agreement with the IRS. The interest rate is presently 3%. There’s also a late payment penalty at 3% or 6%, which the IRS can waive for reasonable cause. You can pay off the balance when your loan is approved.
Permalink Submitted by Annalie Smith on Sat, 2013-06-01 02:35
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