From: Cape Coral, FL

Dear TaxMama,

My boyfriend had to take extended FMLA and ended up having to resign his position at work.

Because of that, he had to tap out his 401k. He used about half of it for living expenses and about $28k to invest in a franchise that he thought could become a family business.

The franchise turned out to be a TOTAL rip-off, so that $28k is gone with no hope of recovery (short of a lawsuit) unless there's a way he can write it off his taxes.

Also, he already paid the penalty for cashing out early, but hasn't paid the taxes on the whole $50K+ yet.

If we get married before the end of this year and file our taxes as married filing separately, would they take my tax refund too?

Thank you,
Kathy

 

Dear Kathy,

Your boyfriend needs some help. Please have him see someone good, locally, to get his taxes done to the maximum advantage.

There has been some talk about waiving penalties for unemployed folks who must draw on their retirement plans to survive. But I haven't seen that law pass yet. After all, that would be a practical,humane law...so why rush into it?

However, Congress threw him a bone a while back, if your fiance spent any of that money on health insurance premiums or medical expenses while being unemployed, that part of the 401(k) draw won't be subject to penalties.

Handled properly, he'll be able to deduct the costs of starting his failed business.

In addition, depending on why he took the family leave, there may be a chance that he can get some of his underpayment penalties waived...or even early withdrawal penalties. Much will depend on is reasons and what he spent the money on. A good tax pro can help him sort all that out and keep his taxes as low as possible.

As for you, my friend, as long as you file separately, your refunds will not be touched.

Also, do your best to keep your funds in separate bank accounts. Yours will not be tapped by IRS.

Take good care of each other.

Best wishes,
Eva Rosenberg, MBA, EA