Early Distribution Penalties

[mactoolsix]

We have a client (MFJ both age 56), became unemployed March 2013, and had 27K un-reimbursed medical expenses.
Medical expenses were 14K insurance premiums (Cobra) plus 13K doctors.
The husband took an early distribution of 25,000 and the wife took an early distribution of 10,000.
AGI = 166,000 so the 10% medical threshold is 16K.

We can use the medical exceeding the 10% threshold (11,000) as an exclusion for the wife's early distribution of 10,000.

We can also use the insurance premiums paid while unemployed to exclude 14K of the husband's early distribution.
There is no "threshold" requirement when using the medical insurance premiums.

Our questions is - Can we use both exclusions simultaneously?

If is sort of like "double dipping" however after extensive research - both publications and the code - we have found nothing that addresses this possibility.

Your valued input would be much appreciated!

Mike

[TXEA]

If these distributions came from a 401(k) plan and NOT an IRA, then take a look at the exception for separation from service after attaining age 55 exception. If they qualify, it saves a lot of headache dealing with the medical expenses.

To qualify, the distributions must have come from the 401(k) plan and they must have separated from service after age 55.

[mactoolsix]

If these distributions came from a 401(k) plan and NOT an IRA, then take a look at the exception for separation from service after attaining age 55 exception. If they qualify, it saves a lot of headache dealing with the medical expenses.

To qualify, the distributions must have come from the 401(k) plan and they must have separated from service after age 55.

Sorry, I should have been clearer - both early distributions were from their traditional IRA accounts

[TaxGuyBill]

Maybe I'm misreading it, but §72(t)(2)(B) [exception to penalty for Medical Expenses] says:


"Distributions made to the employee (other than distributions described in subparagraph (A), (C), or (D)) to the extent such distributions ..."

http://www.law.cornell.edu/uscode/text/26/72#t_2_B

Subparagraph D is the exception for Health Insurance. The way I read it, that is saying you can't "double dip".



What do you think?

[appelman]

As I read it...

You can exclude the insurance premiums from the penalty. You can also exclude eligible medical expenses over the threshold, but for this purpose you must not include in medical expenses the insurance premiums that you have excluded under the separate provision.