My dad gave $1 million from his retirement account to a Russian/Chinese scam artist and now owes $200K for early withdrawal

Commenters alerted me it is NOT an early withdrawal fee. He owes 200K to the IRS…

My dad (65 years old, lives in Connecticut) does not have 200K available. In fact, he is borderline broke because, after marrying his second wife, she became the provider. She later left him for another man, and after this whole scamming fiasco, she took all of their money and both homes. He is living in a studio apartment and paying rent with what little money she gave him in the divorce settlement.

He was recently put in a psychiatric ward for suicidal ideation because of this whole mess.

My dad thought this Russian-Chinese woman was his new online girlfriend. She asked him to wire her money for an investment. We all begged him not to do it. As soon as he wired the money, she ghosted him.

His accountant says the only way he can avoid paying the $200K is if he has an FBI case open regarding the incident.

He submitted a complaint to the FBI, but they said they need more evidence of extortion to start a case, like exchange of lewd photographs or threats of blackmail—neither of which occurred.

What are his options to avoid this $200K tax liability?

(No, we are not trying to get the million back. That, unfortunately, is gone.)

He can and should file reports and follow up with the police and the FBI.

But the money is gone, and he is very unlikely to get it back.

Val said:
He can and should file reports and follow up with the police and the FBI.

But the money is gone, and he is very unlikely to get it back.

OP, you are likely to get DMs from people claiming that they can get your dad’s money back. Those people are all scammers. He will need to work with law enforcement and his accountant or financial institution on this, not anyone from the internet.

Val said:
He can and should file reports and follow up with the police and the FBI.

But the money is gone, and he is very unlikely to get it back.

He submitted a complaint and followed up, but the FBI says it’s not enough to make a case. He needs evidence of extortion beyond the money transfer.

@Omar
Extortion is making threats in exchange for money. This sounds like a dubious ‘investment opportunity’ with no threats or coercion involved.

@Omar
Right. But case or no case (and there may not be one), the money isn’t coming back.

Val said:
@Omar
Right. But case or no case (and there may not be one), the money isn’t coming back.

None of us are trying to get the money back; we know it’s gone. Just trying to avoid the $200K IRS tax liability. His accountant says an FBI case could help waive it.

@Omar
The issue is that he voluntarily withdrew the money. Even if the woman was legitimate, he’d still owe taxes on that withdrawal.

Val said:
@Omar
The issue is that he voluntarily withdrew the money. Even if the woman was legitimate, he’d still owe taxes on that withdrawal.

Other commenters have pointed out that it’s the IRS charging the $200K, not his bank, since he’s old enough for penalty-free withdrawals. He just owes taxes, but he’s not reliable for accurate information right now.

@Omar
Right, he won’t face an early withdrawal penalty, but he still owes taxes since the withdrawal counts as income.

@Omar
Look into the IRS Fresh Start program. It won’t eliminate the debt, but it could reduce it or make payments more manageable. You can discuss it with his accountant.

@Omar
If it was a traditional retirement account, the tax could exceed $200K, depending on his tax bracket. You should check how much he withdrew and how much was withheld. If he owes more, a payment plan with the IRS is likely the best option.

@Omar
Also, beware of scammers claiming they can recover the money for you. It’s likely a crypto investment scam. I’d suggest posting this on scam-related forums for advice too.

He can still report the crime to his local police department. They may not take action, but it’s worth a try. He should also check if any state agencies in Connecticut might assist with this.

Niko said:
He can still report the crime to his local police department. They may not take action, but it’s worth a try. He should also check if any state agencies in Connecticut might assist with this.

He’s in Connecticut. Thanks for the suggestion; I updated the post.

I thought once you were 59.5 years old, you could withdraw from a 401(k) without the 20% penalty? You’d still owe taxes, but no additional penalty.

Mal said:
I thought once you were 59.5 years old, you could withdraw from a 401(k) without the 20% penalty? You’d still owe taxes, but no additional penalty.

Yes, commenters clarified that it’s the IRS he owes, not his bank. His communication isn’t great due to his current mental state.

@Omar
Sorry this is happening. My mother-in-law was scammed out of her savings too. It’s devastating. I hope your dad gets the help he needs soon.

Mal said:
@Omar
Sorry this is happening. My mother-in-law was scammed out of her savings too. It’s devastating. I hope your dad gets the help he needs soon.

I’m so sorry to hear that about your mother-in-law. I appreciate your positive attitude and send you best wishes.

@Omar
He owes the taxes because he withdrew the money, regardless of what happened with the ‘investment.’ He would owe them no matter what.