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Author: Tcattwo Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76397  
Subject: HELP: IRA EARLY DISBURSMENT Date: 9/7/2000 6:19 PM
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My accountant charged me 10% for the $8000.00 I had to withdraw due to an operation. I don't think there is a penality for this?

Does anyone know?

PLEASE????
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24659 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/7/2000 6:35 PM
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Greetings, Tcattwo, and welcome. You asked:

<<My accountant charged me 10% for the $8000.00 I had to withdraw due to an operation. I don't think there is a penality for this?

Does anyone know?

PLEASE???? >>


If you are younger than age 59 1/2 and took a distribution from your traditional IRA to pay medical expenses, then you must pay both ordinary income taxes and a 10% early withdrawal penalty on the amount taken. Medical expenses are NOT an authorized exception to the early withdrawal penalty. See IRA Publication 590 (Individual Retirement Arrangements) for details. You will find it at http://www.irs.ustreas.gov/forms_pubs/pubs.html.

Regards..Pixy

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Author: Bobbcat Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24660 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/7/2000 6:44 PM
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When you say the "accountant charged me 10%"... did you mean:
He made me pay estimated taxes?
He had the financial institution pay you 90% and withhold 10% (the default withholding amount and still probably not enough)
He filled out a form and reported the 10% penalty withdrawal.

-----------------------------------
Anyway,

I just looked at p 34 of IRS Publication 590 located at www.irs.gov

unreimbursed medical expenses must exceed 7.5% of adjusted AGI to be eligible for the penalty exception.

Therefore if your AGI is more than $106,666 (x7.5%=$8000), the distribution is taxable with an additional 10% penalty attached.

*Cat

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Author: Tcattwo Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24661 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/7/2000 6:55 PM
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Thank you for getting back. I was charged a 10% penality for an early withdrawal on the $8000.00; which is $800.

My income is only $14851 with the $8000.00. Just does not seem right to me. I was not insured and had not choice but to pay the only way I could.

Why is this not a tax deduction? I am real confused! And pretty angry.

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24666 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/7/2000 10:15 PM
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My income is only $14851 with the $8000.00. Just does not seem right to me. I was not insured and had not choice but to pay the only way I could.

Why is this not a tax deduction? I am real confused! And pretty angry.


See page 19 of IRS Publication 590, and get a new accountant after the old one amends your return without charge, assuming this was your 1999 return. (I assume you told him about the medical expenses.)

You have to include the $8,000 in your income. There's no way around that. However, if you withdrew $8,000 from your IRA and spent $8,000 on unreimbursed medical expenses and your total income was $14,851, only $1,114 of it (7.5% of 8,000) is subject to the premature distribution penalty. Your penalty will be $111, not $800. (If you spent more than $8,000 on medical expenses, the amount of the penalty goes down.)

The penalty exception is reported on Form 5329. Also, unless you file married, filing jointly, you should have itemized deductions on Schedule A.

TMF ExRO
Phil Marti

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Author: Tcattwo Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24673 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/8/2000 1:02 AM
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I can't tell you how much your response means to me. I had to lay down from the sheer shock of it all!

With my School Taxes, Income Taxes, and other bills I needed an immediate loan; and now maybe I can just stop eating for awhile!

Thank You so much, you haved saved me much grief.




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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24676 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/8/2000 8:46 AM
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Phil wrote:

<<You have to include the $8,000 in your income. There's no way around that. However, if you withdrew $8,000 from your IRA and spent $8,000 on unreimbursed medical expenses and your total income was $14,851, only $1,114 of it (7.5% of 8,000) is subject to the premature distribution penalty. Your penalty will be $111, not $800. >>

Shame on me. That's what I get for trying to answer from memory. Unfortunately, in my reply I was thinking of the exception for medical insurance premiums and forgot about the medical expenses exception. I should have taken my own advice and looked at IRS Pub 590.

Thanks for correcting my error so tactfully, Phil. I'll sentence myself to ten minutes of silent reading, though, to refurbish the ole grey cells.

Regards..Pixy

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24679 of 76397
Subject: Re: HELP: IRA EARLY DISBURSMENT Date: 9/8/2000 9:15 AM
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Thanks for correcting my error so tactfully, Phil.

My pleasure--only repaying the many who have done so for me.

BTW, there's an error in my original response. The bottom line numbers are right, but the penalty is based on 7.5% of AGI, not 7.5% of the amount withdrawn, as I indicated in that explanation.

To clarify for the original poster:

1. Total all unreimbursed medical bills for the year.

2. Subtract 7.5% of AGI. The lesser of this result or the gross premature IRA distribution goes on line 2 of Form 5329 with reason code 05.

The rest of Part I of Form 5329 computes the applicable penalty.

TMF ExRO
Phil Marti

Reminding himself to proofread

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