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Author: GeorgeGregory Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19380  
Subject: Re: Early W/D From IRA w/Penalty Date: 12/28/1999 8:22 PM
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First, as a tax lawyer I hate to see anyone pay avoidable taxes, penalties or interest. A tax deferred is also a tax preferred. Therefore, before I answer your questions, let me point out that the annuity tables provide you with a 20.3 multiple which is less than 5% per year as a required payout for substantially equal payments, and if you have a designated beneficiary that would raise the multiple (lower the percentage), perhaps as low as 3%. (As a lawyer who does a lot of tax and estate planning, may I also add that you should have a desiganted beneficiary.) If you need a lot less than 3%, then I suggest you find a way to make do for 2 or 3 years on other assets or income. Enough "couseling" - now you see why we are attorneys and counselors.

To answer your question, first I would suggest you go to http://www.irs.ustreas.gov/plain/forms_pubs/index.html

it is the IRS forms and publications site.

You need forms and instructions on estimated taxes, penalties for estimated taxes and grounds for waiver of those penalties. If you just pay them the way the 1040-ES requires, then you should have no penalties. Regard the 10% penalty as a tax you will pay. You will probably want to download form 1040 and 5329. They should be avaiable for 1999 on the site.

Call the broker and tell him to sell X and send you a check for $Y. He will probably ramble on just as I did. Eventually, you will get your check. You report the income on the front page of the form 1040. You report the penalty on form 5329 and include in the taxes reported on the return (line 53 on the 1998 form). The IRA custodian or trustee will send a form to the IRS and sometimes to you (usually in April or May) telling them whatyou did. The IRS will match this form to your tax return about 18 months after that. If you forget to report this amount of income, a number of other interesting penalties and interest will be imposed, and inquiries will be made about the need for withholding at source. Avoid all of these.

You should research this further on the IRS site. It is not meant as specific legal advice, just a general discussion about your chosen topic.

Hope this is helpful in pointing you in the right directrion.
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