Forms 5329 & 8606

[SUETINGSTA]

Client withdrew Roth IRA of 22000 to purchase new home. Client is 40 years old. I have used Form 5329 and Form 8606.
Which should be used first for the 10,000? the answer really changes depending upon which form is
used first. I think that the Form 5329 is where the 10,000 is used, but would like to have someone
confirm this.

[Roland Slugg]

Complete F-8606, Part III. If this results in an amount on line 25, that amount then goes to F-1040 and it ALSO goes on F-5329, line 1 because it is subject to the 10% early distribution tax.

It is probably unlikely that any of the $22,000 distribution will end up being subject to tax or the 10% penalty. In order for that to happen the T/P's basis in his entire Roth IRA would have to be less than $12,000 ($22,000 less $10,000).

[SUETINGSTA]

thanks for the speedy response. i am still unclear where the $10,000.00 exemption goes - on the 8606 or the 5329. makes a significant difference in the
tax liability.
sue t

[S T]

You might need a little more to think about - there was an article on fool.com that addresses part of the steps that might qualify for the penalty, etc.
might need to see if any of this money was converted or not. http://www.fool.com/money/allaboutir...boutiras12.htm

Sandy