Annuity/child support

California:


Okay... Here's my situation folks. I have an annuity that was created by my union (I'm no longer a member of) that has been growing since 1997. I am now self employed in a new career and need to withdraw the entire annuity (about $25,000) in order to buy desperately needed equipment.
My concern is that 15 years ago I discovered I had a child when Child Support Services informed me that I owe them $20,000 in back support. That's a long story in itself. I admit that I have not been perfect in making my payments, however I have done pretty well with the exception of the last 4 months.

Question #1) Child Support Services automatically report delinquency to the California Franchise Tax Board. I don't know if this has happened yet, but if so...
Can the California Franchise (or federal) Tax Board absorb my entire annuity when I try to withdraw?

Question #2) How can I check to see if I have a negative standing with the Tax Board?


For the past 5 years I have worked diligently to position myself properly for this moment. If I can withdraw this annuity I can not only continue to make my child support payments, but I can have my back support payed off within a year. Otherwise, I will be forced to return to my old line of work that offers no chance for advancement and I will continue to live in debt. In other words, it's do or die.

Thank you in advance for any insight/advice you can provide.

Jeff D said:

California:


Okay... Here's my situation folks. I have an annuity that was created by my union (I'm no longer a member of) that has been growing since 1997. I am now self employed in a new career and need to withdraw the entire annuity (about $25,000) in order to buy desperately needed equipment.
My concern is that 15 years ago I discovered I had a child when Child Support Services informed me that I owe them $20,000 in back support. That's a long story in itself. I admit that I have not been perfect in making my payments, however I have done pretty well with the exception of the last 4 months.

Question #1) Child Support Services automatically report delinquency to the California Franchise Tax Board. I don't know if this has happened yet, but if so...
Can the California Franchise (or federal) Tax Board absorb my entire annuity when I try to withdraw?

Question #2) How can I check to see if I have a negative standing with the Tax Board?


For the past 5 years I have worked diligently to position myself properly for this moment. If I can withdraw this annuity I can not only continue to make my child support payments, but I can have my back support payed off within a year. Otherwise, I will be forced to return to my old line of work that offers no chance for advancement and I will continue to live in debt. In other words, it's do or die.

Thank you in advance for any insight/advice you can provide.

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Option 3: Withdraw the annuity to pay your debt.

Zigner said:

Option 3: Withdraw the annuity to pay your debt.

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Certainly an option and valuable advice. However, with my option I will also be able to send my daughter to college.

Jeff D said:

Certainly an option and valuable advice. However, with my option I will also be able to send my daughter to college.

Click to expand...

That is speculation. You want to invest in a business opportunity, as opposed to paying your current debt.

Well, first, be aware that a $25,000 annuity is subject to income taxes & penalties. Expect to lose at least 15% in penalties, plus whatever your federal & state marginal tax rates turn out to be. If you're in the 15% tax bracket federal & 8% California, you'll lose 38% of your distribution to the government. Mandatory withholding means you probably have 25-30% deducted before you get any money.

If it's an option, you might consider rolling the pension fund into an IRA, then converting to a Roth IRA, then withdrawing money. This may let you avoid penalties. It's a lot more headache, though.

So, first, I'd recommend you see if you can find any of the needed equipment used or available for rent/lease. Second, you might look for a business loan to finance the equipment. The interest on the loan is deductible as a business expense, & you don't get smacked with early withdrawal penalties. It may easily be cheaper to borrow the money you need.

You can call the CA FTB & ask if they show any outstanding debt in their records. Same for IRS. They won't take your pension for back support, however; they will take any refund for back support. (If you don't have a refund, this is not a problem.)

You can also maybe renegotiate your back support with a lump sum settlement amount, or request a reduction in support due to changed income levels.

Talk to your local tax pro (& get one if you don't already have one) about your options & the short & long term implications of each. If you need a tax pro, look for an enrolled agent with lots of small business experience. You need advice tailored to your business that's more sophistocated then QuickBooks can provide.