Early Withdrawal

Archive for November, 2005

Question: Question Regarding How to Assess 10% Penalty on Early 401k Withdrawal?

I am younger than age 59 ½ but had to take an Early Withdrawal from a 401(k) plan in 2009 due to financial difficulties. I am trying to figure out how much of the withdrawal is subject to the 10% penalty associated with Early Withdrawal. Does the following statement from the IRS website (which lists one of the exceptions related to assessing the 10% penalty) mean I can exclude all of my withdrawal from the 10% penalty, or does it mean I can exclude only the amount by which I am over the 7.5% threshold for deductible medical expenses?

Answer: Exclude only the amount OVER 7.5%

401k Distributions

Question: Put excess money in Roth IRA to trade, then withdraw before tax date?

It is my understanding that if you withdraw excess contributions on a Roth IRA before tax filing date, it is as if you never contributed those amounts. So, isn’t it true that theoretically speaking I can put in $15k in 2008 ($5k being the limit, i.e. $10k excess), invest for the year, and at the end of the year pull out $10k so that net net I contributed $5k for 2008, no penalties, no taxes? So, say I make 10% return a year, instead of having $5500 at the end of the year growing tax-free due to the limit, I now have $6500. Am I missing something?

Answer: You also have to withdraw any gains associated with the excess contributions. And then the total amount would be taxable. So you the only thing you gain is difficulty in computing the associated gains and taxes.

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Question: URGENT: tax question: Ira Withdrawal with medical exclusion. Is this also an itemized deduction? ?

I took an early IRA withdraw of $44,000. $32,000 was spent on medical expenses for my dependent mother. Can I take this as an itemized deduction in addition to excluding it from my tax penalty? I must file 9/22/08

Answer: 1. You must be able to claim your mother as a dependent for medical purposes on your tax return in order to put the amount on your schedule A.

2. Yes, you can list the amount on schedule A *and* use it to on form 5329 to avoid the 10% penalty. It’s not double dipping because it’s 2 different taxes.

Tax Deduction Tips : Types of Medical Expense Tax Deductions