5329 Exceptions to 10% additional tax

[Larmil]

TP, age 32, withdrew $15,000 form his IRA. Only other income was $15,000 unemployment. TP paid $3,000 for med insurance during the year. He had other qualified medical expenses of $2,000. How much is his exception on line 2 of 5329?

[jimfrombx]

The $3,000 would be an exception if they lost their job and collected unemployment for 12 weeks. The medical expenses in excess of 7.5% of AGI ($2250) would be an exception. Since they were only $2,000 then none of it qualifies for the exception

[taxea]

Also distribution for medical is exempt only after the TP has received 12 weeks of unemployment benefits.

[taxmom34]

where did that come from? i only see medical expenses to the extent they exceed 7.5% of AGI regardless of whether or not the participant itemizes deductions.

[taxea]

where did that come from? i only see medical expenses to the extent they exceed 7.5% of AGI regardless of whether or not the participant itemizes deductions.

Came from reading The Tax Book under the regulations section for IRA distributions.

[taxea]

TTB page 13-3 72(t)(2)(D)
Distribution from an IRA to an unemployer individual to py for health insurance after leaving a job if the individual has received unemployment compensation for 12 consecutibe weeks...etc

[ddoshan]

Medical expenses do not need the unemployment exception. Medical insurance does. Post 2 appears on point.

[taxea]

Agreed Dodsan....the original post did say the money was taken to pay medical expenses and medical insurance.

[taxmom34]

so, client can claim both exceptions? #5 & #7 thanks for clearing that up ddoshan

[ddoshan]

Actually jim ... in post 2 put it quite succinctly.

[Gary2]

The $3,000 would be an exception if they lost their job and collected unemployment for 12 weeks. The medical expenses in excess of 7.5% of AGI ($2250) would be an exception. Since they were only $2,000 then none of it qualifies for the exception

But if they don't qualify for the insurance exception, then the insurance would be added to the other expenses, and hence the excess above $2250 (i.e. 2750) could be excluded.