I understand that is allowed, exemption 5, what I don't understand is the part about being over 7.5% of gross. If medical expenses aren't over 7.5%, 10% penalty isn't abated? I've put it in my software on the 5329, it reduced the penalty, (but medical expenses are less than 7.5% of gross), software reduces the penalty by the medical expense amount. Who's correct, and am I deciding if amount is abated? I thought maybe the software would determine that, seeing all the information is imputed?
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Only the excess
Unfortunately you can only abate the penalty on the amount that exceeds 7.5% of the AGI. -
How much is the expense? I haven't had to do one this year but have they changed the rules? Do you get to exempt 10K for medical, buy a first home and college?Believe nothing you have not personally researched and verified.Comment
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With all due respect I believe you are incorrect. The 10K exception is the maximum for penalty exception on the purchase of first home. I don't think they have changed the rules - I think these have always been the rules.Originally posted by taxea View Post
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Again, client rec'd info from "someone" who know you could take out for medical expenses and not pay the penalty. Client's medical expenses aren't even close to exceeding 7.5% of gross. I'm printing the page and highlighting. Your answer was what I thought, thought maybe I read wrong. ThanksComment
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This is the type of issue which I have difficulty in remembering. However pg 13-3
of TheTaxBook says:Section 72(t)(2)(B) states that the 10% penalty applies except
where the medical expenses EXCEED 7.5% of AGI whether the taxpayer itemizes or
not. This only applies to a qualified retirement plan NOT an IRA.Comment
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Without looking I'm 99.99% sure it DOES apply to IRA's. I'm sure I'll be corrected if I'm incorrect.Originally posted by dyne View PostComment
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TTB 13-3 says "from a qualified retirement plan" on this issue. However, it does not contain the addl wording "does not apply to IRA's."Comment
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Upon researching I am satisfied that the exception DOES apply to an IRA distribution.
I was wrong. I thank you for clarifying the issue. TheTaxBooks says that the medical
exception applys only to Qualified Retirement Plans. IRS.gov says that IRA's DO
qualify as a QUALIFIED RETIREMENT PLAN.Comment
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Form 5329 exceptions
The rules for the exclusions are quite clear if you read the IRS instructions for Form 5329, lines 1 and 2.Originally posted by dyne View Post
It should be noted there is a definition of what constitutes a "qualified" plan and also there are separate restrictions (some say "IRA") for the allowable exclusion codes, e.g. codes 07 and 08 and 09.
I agree the 7.5% floor ( = deductible medical expenses, aka "excessive" ?) does come into play here.
Sometimes it just helps to read the IRS rules first. . . . . .
FEComment
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The Tax Book is absolutely correct. The problem is that the exception found in 72(t) apply to qualified retirement plans as defined in ยง4974(c). Typically, the phrase qualified plan is used in a different context.Originally posted by Burke View Post
(c) Qualified retirement plan
For purposes of this section, the term "qualified retirement plan" means--
(1) a plan described in section 401(a) which includes a trust exempt from tax under section 501(a),
(2) an annuity plan described in section 403(a),
(3) an annuity contract described in section 403(b),
(4) an individual retirement account described in section 408(a), or
(5) an individual retirement annuity described in section 408(b).Comment
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if you read my post the 10K exemption for all three was a question and thank you for the cite. As I said I haven't had to deal with this issue but if I do I would go to the code first.Originally posted by Jesse View PostBelieve nothing you have not personally researched and verified.Comment
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