POZ Community Forums
Meds, Mind, Body & Benefits => Insurance, Benefits Programs & HIV => Topic started by: mashers1234 on April 24, 2017, 04:58:10 pm
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Howdy everyone, been so long away I had to make a new account. I have a stumper on Illinois ADAP that no one seems to be able to answer. My social worker at N'Western and ADAP itself have no clear answer, calls to TPAN and ALC not returned yet. Anyway, here's the situation: if I lost my job (my company is starting to outsource or my AIDS + Bipolar I cause an inability to work), I'll have to cash out my 401(k) -- I have no family to live with, what I could (or should) have saved I've paid exrra on my mortgage, and will, after all taxes and fees, have about $52000 to live on for as long as I need to find another job. My psych and ID are suggesting SSDI in any case, and if I might bite the bullet and go that route in any case. It can take 30 months here just to get to a hearing if things go as they generally do in Illinois. My housing costs are less than $800/month so I could never let that go. Question is, the cash out is considered earned income, and puts me over the yearly income cap, even if I had no job now. But it will be all I have to live on, and I really would need ADAP to get me through. But as I mentioned my CSS and ADAP don't know if a one-time distribution (which is counted as earned income on form 1099) will disqualify me from ADAP. Any insights? Please ask if I can clarify and while I know nothing said here is binding any input, advice, ideas, etc. would be appreciated -- the only idea so far is hopefully stay employed until near the end of the year, cash out and then start the year with zilch income. Thank you all so much.
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Distributions from 401Ks or IRAs are reported as taxable income. It's a pretty safe bet that ADAP has to treat this as income, since it is reported to the IRS. Looks like the Illinois ADAP application for specifically asks for IRA distributions. You can pretty much bet they mean 401K distributions too, and though there might be an arcane exception, I suspect it is wishful thinking. Even if it is not treated as income this year, it will be considered an asset the next year, which might be problematic for ADAP too.
Why don't you do a rollover of your 401K into an IRA? Then you can control when you make withdrawals, which will still be counted as income, and subject to the same 10% penalty unless you are over 59 1/2. You could time the withdrawals so they are not all in the same year, and don't put you over the ADAP limit. Most ADAP plans don't include qualified retirement accounts in your assets. Also, IRAs and 401Ks allow for hardship withdrawals which are penalty-free (but still counted as income), but they have to meet very specific requirements.
If you decide to do a rollover, make sure the money doesn't come to you directly, but goes directly from your employer's 401K to where you will open your IRA. Otherwise it could get treated as income.
Best of luck...
Henry
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If the 401(k) is rolled over into an IRA, there is a way to take distributions before you are 59.5 and not be assessed the 10 percent "early withdrawal" penalty (but, of course, the withdrawals will be taxed as ordinary income).
Access these links for further info:
https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-payments
https://www.calcxml.com/calculators/72t
It can be tricky, so you need to review carefully what must be done correctly (or the IRS can disallow).
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Yeah it's going to be tricky any way it goes down. I'm not well versed into converting a 401K into an IRA, but I don know you may make withdrawals. Whether I'm able to make withdrawals large enough to live on, is another matter. I spoke with my social worker after posting, and there was a little progress. One possibility she needs to clarify is that if I can hang on to my job through the end of the year, take the distribution as earned income for this year, and then start 2018 as income less ADAP should accept me. The premise is if you made say $150,000 in 2017 but lost your job come 2018, ADAP here accepts that you do not have an income even though you made a ton the year before, and thus are eligible. This needs to be rock solid clarified, meaning that reported income for 2017 in 2018 on 1040 must not disqualify. I'll have to talk to a tax advisor on the IRA. I don't have a lot of money, so even that will be a hardship. Part of this question is just putting my ducks in a row -- with the outsourcing and what is clearly becoming an inability to perform my daily tasks, including work, something's going to happen eventually. The head injury I had in November seems to have precipitated a cognitive and visual decline, I have a neuropsych workup and full ophthamalogical (sp) scheduled for May. My ID and psych are strongly advising me to extract myself from the workforce and if you knew me, with such troublesome mental problems (along with all the problems from AIDS and med side effects) you'd kind of see their point. The sticking points are having enough to live on and that completely depends on ADAP (although we can pressure Gilead into dispensing at no cost I still wouldn't be insured for a certain period of time. Anyways, I can barely see the screen so will stop typing, but I appreciate the input and will follow up. Any other suggestions from you guys or others would surely help, even pessimistic observations help keep my feet on the ground. Thank you.
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Thank you all. I made a few calls and the way to go, in my situation, and I hope this helps others, is to roll into an IRA account to account and take out what I need to live on which will entail a 10% penalty + regular income tax on the withdrawn amount. Your help leading me to make these inquiries really helped calm a lot of stress and if anyone else is in my situation I hope this gives some guidance. Lining our ducks up keeps us healthy.