02/19/2026
Talking to a tax strategist could have saved him from a $77,000 headache.
This simple and common mistake could have been avoided with a simple call to our office and a conversation with one of our tax strategists. A 48-year-old client got divorced last year, which required the sale of the marital home. He then cashed in $257,000 of retirement funds to help with the purchase of a new home. He didn't read the paperwork or talk to a tax strategist, so the company withheld 10% federal and 5% for the state.
You know where this is going: 10% is the amount of the early withdrawal penalty, so he effectively had 0% withheld for federal income tax. Adding $257k of income to the rest of his income, changing his filing status from MFJ to Single, and not having enough withheld for the state resulted in the client owing in excess of $77k.
What would I have done if he called me (glad you asked)
1) Run the numbers so he knows what the tax hit would be
2) Suggest he purchase a less expensive home
3) Consider renting
4) Discuss the long-term impact of this huge hit to his retirement account
Don't make a mistake like this. Reach out to our office and talk with a tax strategist today.
