Taking Early Distributions from an IRA

Dear Mr. Perez…

I would very much appreciate your help with an issue regarding my taking a withdrawal from my IRA.

I am not 59 ½ yrs of age, however I am disabled and the amount taken was used for a medical situation this year.

Am I right in that I do not have to pay the 10% IRS penalty but that I do have to include the full amount I had taken out as income?

The thing I am most worried about is that even though I am married, together we do not make more than $50,000, I would like to know if by using this distribution money and now having to add it to income, is this going to make part of my social security income taxable?

I hope I included enough information, if not, please let me know. I really need to get this situation resolved.

Thank you so very much…

Vicki

Vicki, it doesn’t sound like this distribution will be subject to the additional 10% tax on early distributions. If you are permanently disabled, then there’s no age restriction on when the distributions can be made. If you aren’t permanently disabled, you can still avoid the 10% penalty if your medical expenses exceed 7.5% of your adjusted gross income. And you don’t need to itemize either to claim this exception. Just keep your medical bills along with your tax records.

The withdrawal will be taxable depending on the type of IRA you have. If it’s a traditional IRA, this will be taxable. And that means it will increase your taxable income, which could cause some of your Social Security to become taxable.

If this is a Roth IRA, any distribution made because you are disabled is not subject to tax (or the additional 10% penalty). This would not increase your taxable income, and so would not cause your Social Security benefits to become taxable. (See this section of Publication 590 for more details about Roths.)

Mr Perez,

I currently own a traditional IRA. Iam ready to cash out ASAP before the age of 59 1/2. In addition to the 10% tax deduction, what will be the percentage I will pay from the amount withdrawn from this IRA? Another 20%? or 30%. I guess the amount withdrawn from my IRA is considered as an income, isn’t it?
In fact, I will not record any other incomes for this year (not working in 2008), so would it be interesting to cash out this year 2008 and then benefit with lower taxes for this year?

Oliver, what a great planning opportunity. The IRA withdrawal will be taxed as ordinary income, meaning it’s subject to the progressively higher income tax rates. Here’s a chart of the tax rates for 2008. To figure your tax, you’d factor in any deductions or tax credits you might be eligible for. At the very least you’ll have your standard deduction. Here’s the standard deduction amounts for 2008. You’ll also have your personal exemption (for yourself and any dependents).

So, assuming a simple tax situation, you’d figure the tax using the above information like this: (a) IRA distribution amount – (b) standard deduction – (c) personal exemptions = (d) taxable income. Take the amount for (d) and figure the tax using the tax rate schedule. Then for the 10% additional tax, see if you’d qualify for any of the exceptions. If not, take the amount for (a) and multiply by 10%. (A) and (D) added together will be your federal tax for this year.

There may also be state taxes to consider as well. You’ll need to find that information separately. What I would do (personally) is ask the IRA administrator to withhold the exact amount of tax I calculate. Otherwise they will withhold a flat 20%, which in my experience is usually too low to cover the taxes that might be owed.

Once you know this tax liability, you can go back and look for any deductions or credits that you might qualify for. Any extra tax breaks will only further reduce your tax liability. I’m not sure about your particular life situation, but things like school tuition, significant medical expenses, charity, mortgage interest and property tax would be the big ticket items to review.

Hope this helps,

William

Thx William. Informations were really helpful.

My one other question is, when I took out my IRA money, I did not specify to the bank that I was disabled, so if the box does not have the proper code, is this going to be a big issue? Banks, especially internet banks are a little difficult to deal with.

You should first ask the bank to code the 1099-R form properly to reflect this is a distribution due to disability. If they don’t code it properly, then you can correct that on the tax return by filing Form 5329 (instructions) and indicate that the distribution is due to disability on Line 3 using code 03.

Is it wise to take out money from Your IRA when your disabled? With the market in tumoil and have lost money that will take years to recoup, esp., since the IRS say’s you cannot add money into it if you don’t have “earned income”. Please help, I would love to buy into the low market into my IRA ( roth and traditional).

Is there a max dollar amount for early distribution for higher education like 1st time homebuyer is $10,000..?

William: My wife is a teacher and has a 403B account. Can she Roll Over her money to an IRA while she’s still employed and making contributions to her 403B? She’s over 59 1/2. Thanks for your help.

When you withdraw money before age 59 1/2, is the additional income you claim the amount minus the 10% penalty for eary withdrawal and the 10% additional tax penalty (amount withdrawn 50,000 but actually 40,0000 after withdrawal and tax penalty)? Thank you.

Can you be disabled permanently and legally, yet sitll work and take an early distribution without penalty?

Hi William:
I hope you can help me with this issue. In 2006 I cashed out my IRA to pay for a loan that I obtained to pay the closing costs for the purchase of my first house. I’m embarrased to ask this question – but is there anyway to prove to the IRS that this money was used to paid my closing costs? I purchased the house on Dec, 2005 and the withdrawal was made on June 2006.

Mel, generally, I don’t advise withdrawing from an IRA unless you really need to. Once that money is withdrawn from an IRA, it generally cannot be re-deposited, so you really need to be sure that you need that money outside of a retirement plan. If you plan to invest or save for ahwile, it will probably be better off inside the IRA. I also posted some additional considerations to keep in mind when thinking about cashing out an IRA.

Debbie, there’s no particular dollar limit for education expenses like there is for the purchase of a home. Just be sure to keep invoices for tuition handy in case the IRS has any questions.

David P., unfortunately, no. Your wife cannot rollover her 403(b) money to an IRA while she’s still employed. However, she could rollover IRA money to her 403(b). I wish they would fix this law, and allow savers to pick the best fund for their retirement instead of being stuck with the funds picked by the group plan.

Amy, no the entire amount of the money you take out (called the gross distribution) is subject to both the tax and to the 10% penalty. So the $50,000 withdrawal is subject to tax plus an additional penalty of $5,000 (10%).

Brian, generally no. The IRS wants to proof that the taxpayer “cannot do any substantial gainful activity because of your physical or mental condition” according to the explanation of “disabled” in Publication 590. However, for any particular year, the IRS might not raise any questions. For example, did the work occur before becoming disabled, or perhaps much later in the year. If the person was working simultaneous to taking the distribution, perhaps it was used to pay for significant medical expenses?

Edwin, Is the IRS asking for proof? Or is this more of a general question? If the IRS isn’t asking any questions, the simple answer is to gather your escrow documents showing all the closing costs you paid. The relevant law here is Internal Revenue Code section 72(t)(8), which specifies that the IRA funds withdrawn must be used “before the close of the 120th day after” the withdrawal was made and used to pay for costs related to the purchase of a main home for a first-time homebuyer. Since the closing costs were paid in December 2005 and the distribution was made June 2006, the closing costs were paid before the 120-day period elapsed. Or perhaps I’m taking an overly generous reading of the law here? I don’t see any regulations or case rulings that weighs in on what happens when a home is purchased before the IRA distribution is made.

Bill -

I am taking an early withdrawal from my SEP to pay for higher education expenses for my daughter. In order to avoid the additional 10% penalty, may I utilize earlier education expenses from 2007 or 2006 to match against the withdrawal or am I only able to utlize those education expenses incurred in 2008?

Thank you.

I’ve been off work since July of this year and am now facing major surgery that will keep me from working for a minimum of 12 weeks. If I withdraw funds from my IRA for medicals, would that money be subject to the 10% penalty for early withdrawal?

Mr. Perez,
How do I find out if Minnesota will tax my early IRA withdrawal?

Patricia, it does not appear that MN imposes a penalty on early withdrawals from an IRA. However, the state does allow people to pay a capital gains tax on a lump sum distribution in certain circumstances. You may want to confirm this with a local accountant in Minnesota.

Ben, you can take a withdrawal from your IRA penalty-free, but remember that the withdrawal will still be included as part of your taxable income. The amount that can be withdrawn without penalty will be the amount of medical expenses that exceeds 7.5% of your adjusted gross income. Now, taking a distribution from an IRA increases your AGI, and so this will increase the 7.5% threshold as well. This makes the formula for finding your optimal IRA withdrawal a bit circular. Fortunately I remember how to do this math. The equation for calculating the penalty-free IRA withdrawal for medical expenses would be as follows:

A = [B - (0.075 x C)] / 1.075

Where “A” is the penalty free amount of the IRA distribution,

“B” is your total medical expenses for the year, and

“C” is your total other income (not including the IRA) minus any adjustments to income.

Once you plug in for B and C, you can solve for A.

I am a Pastor who was between positions when I took some of my 403 (b) to place it on the down payment of a house in a new city and kept some to help us with bills while unemployed. In addition to Income Taxes, will I also have to pay the self Emplyed Social Security Payments on the money as if it was earned income?

Pastor Jim, no you won’t have to pay the self-employment tax on this distribution from the 403(b) plan. Those distributions are treated as ordinary income and are not subject to the self-employment or payroll taxes.

The other thing to pay attention to is the 10% penalty on early distributions from a 403(b) plan. So if you were under age 55 when you took the withdrawal, you’ll be subject to the 10% penalty unless an exception applies. The two main exceptions that you’d especially want to look at is for unreimbursed medical expenses or if you were disabled. Documenting such things can help reduce your penalty (if that applies).

If you took this distribution within the last two months, it may be possible to put this money back into the plan. You have 60 days from the date of withdrawal to roll that money over, either to another plan or back to the same plan administrator. If you’re still within this 60-day period, it might be worth it to see if you can get a home loan for the amount of the distribution so you can put it back into your retirement account.

Mr. Perez,
Thank you so much for your help. I was 56 and without a job so I don’t think the 10% penalty applies but I am still a little unclear when I read the instructions and forms. It looks like the lump sum withdrawal must be included in my income on Form 1040 therefore it would have to be included on line 2 of Form 1040 SSE…is that correct?
Thanks again.

That’s 1040 Schedule SE
Sorry

If you obtained a 401k account through a divorce on a qualified domestic relations court order, it is my understanding the 10% penalty doesn’t apply if you withdraw the money early before 59 and 1/2. Is there any other penalty? Is this considered additional income and taxed as income? Basically what would I owe for all taxe rates and penalties in this situation?
Thanks

Jim, no the withdrawal from the 403(b) does not have to be included on Schedule SE. The self-employment tax is only paid once, when the income is earned (even if the income is set aside in a retirement account). Because the SE tax has already been paid, you won’t need to pay it again.

Joanie, when a 401(k) account is split as the result of divorce, your portion of the money can go into a rollover IRA set up in your own name. That way the money won’t be taxed until you withdraw the funds. Otherwise, the distribution will be subject to the income tax. But it won’t be subject to the additional 10% penalty.

Hello William,

I apologize if this is redundant, but after reviewing all the comments it appears that no one specifically asked this question.

I need to tap into my IRA to pay for bills. Is there a way to get out of paying the 10% tax (i.e. repaying the money by April 15th)? Also, will there be a penalty in addition to the tax?

Thank you very much.

I currently have a 403(b), I am leaving my job (yesterday was my last day) and starting a new job this month while also attending graduate school full time. I do not have any savings money and I was wondering if I can use my money in my 403(b) for school tuition? If so is there a penalty? Does it have to be rolled over to an IRA first?

I hope I am not being a pain but want to be certain I am doing this correctly. The 403(b) contributions were placed in my retirement account by my church and I don’t believe I paid any tax on them at that time since I was never in control of that money. Do I have to include that on my 1040-SE form?

My IRA CD holder did not make the Minimum Required Distribution (MRD) in 2008 as they were instructed when I opened the CD, i.e. ($2,316). Will I now be penalized by 50% for their mistake? I did take out the current monthly interest on the current balance, which should have been reduced since August 2008, the date set for the MRD What are my options..

I have a huge amount of credit card debt and I am thinking of cashing in some of my retirement. I have no other way out and the stress is getting to me. If I don’t eliminate the stress, I may not be around for retirement anyhow. Part of the reason I have the credit card debt is due to giving my son money for his college tuition. Although the debt has accumulated over a period of years, if I can prove that I paid money for the tuition, over the amount that I am going to take out of my IRA, can I avoid the 10%? My situation is long and involved and I know that everyone tells you to not touch your retirement but I honestly think in a year, I will be in a better financial situation and I can start contributing 20% to my retirement. I am in a 20 to 28% tax bracket and right now I am not contributing anything to my retirement. Yes, I am embarrassed by all of this.

Please ignore my post No. 35. I was misinformed regarding my 2008 disbursement. They actually did disburse the MRD in September, but I had not received my 2008 account statement yet. I went to their branch in person and they were very helpful in showing me the dates and numbers
Lisa

Hi,
I am divorced,and my attorney is drawing up a QDRO in order for me to receive my half of my spouse’s 401k. However, I have some questions. I would like to take out only a portion of the amount, and roll the rest over into an IRA. I am told that I will not receive the 10% early withdrawal penalty, as long as I roll the money into an IRA. Is that true? Also, what will I be taxed on. Say I get $40,000, but I want to take $20,000 out and roll the other $20,000 into an IRA. Thanks,
April

Hello,

My job was outsourced at Chrysler Financial this past December. I worked for Chrysler for over 7 years. Eventhough i’m no where near 50, I want to know if I can withdrawn my pension. I’m not looking to roll it over. I just want to withdraw the money, penalty or no penalty, I still want to withdraw. Please let me know if I can do this. Chrysler keep telling me I have to wait until i’m retired.

Michelle, pensions are individually crafted by each employer. So unlike 401(k) and other types of retirement plans, there’s no one set of rules that we can reference to say what is allowed or not. Basically, if the Chrysler pension plan specifies that you must work so many years or reach a certain age before becoming eligible, then those are the criteria you’re going to have to go by.

What are the penalties for cashing out a Roth IRA? I only have a small one but am unable to work as I have gone back to school full time and needs the funds immediately. When would the taxes on those have to be paid and what type of penalty is there. Thanks for any answers

Michelle, Roth IRAs are taxed only on the amount in excess of the amount you originally contributed. For example, let’s say your have a balance of $10,000 that you withdraw, and you originally contributed $8,000. You’ll be taxed only on the $2,000 in earnings, plus any penalty. However, any withdrawal used to pay for college tuition for yourself will not be subject to the additional 10% penalty.

April, the amount distributed from your ex-spouse’s 401(k) will be taxable income to you, but not subject to the additional 10% penalty. Any amount rolled over to an IRA or to another 401(k) account will not be included in your taxable income for the year. (See the QDRO section of Publication 504 for these details.) Thus in the transaction you propose, $20k will be taxable income to you.

Lynn, you can take advantage of the exception to the additional 10% tax only for college expenses incurred in the same year as the distribution from the IRA. There was a tax court case similar to the scenario you present, where the taxpayer cashed out his IRA to pay off credit cards that were used to finance a college education. The court determined that the 10% penalty still applied. (T.C. Memo. 2005-162.)

DebbieK, the only way to avoid taxation of the IRA distribution is to repay the money within 60 days. Otherwise this will be considered taxable income to you, plus the 10% penalty if you are under age 59.5.

Student, if you have a new job, I would rollover the money into a new 403(b) or 401(k), and then subsequently take out a loan against the funds for your education. This will preserve the tax deferral on the savings. If you are definitely going to withdraw the funds for school, I would first roll it over to an IRA in a direct rollover, and then take distributions from the IRA. That’s because IRA distributions are included in your taxable income, but you’ll avoid the 10% penalty.

I have been living in what is my first home for the past 5 years.
If I were to take out part or all of my IRA to apply only towards payment of my first home mortgage, would it still not be subject to the 10% penalty?
Thank you!

Jaime, distributions from an IRA can avoid the additional 10% tax if the proceeds are used to purchase your first home. Proceeds must be used to pay for the home purchase within 120 days of the withdrawal from the IRA. Paying a mortgage doesn’t count as home acquisition costs. So if you withdraw the funds now, you’ll be stuck with the 10% penalty.

A better solution would be to rollover your IRA into a 401(k) plan, and then take a loan against your 401(k). This will preserve the tax-deferral on the funds and avoid both the income tax and the 10% penalty as long as the loan is repaid.

i need help. i am a 58 year old widow and unemployednow for 6 mos. i am still paying college loans for my son, and paying premiums for my own health insurance. in order to pay my mortgage payment so i don’t lose my home, i have had to tap into my retirement fund. i know i can deduct the ins, but i am truly in a hardship situation that i feel is at least as worthy as bailing out a ceo with no conscience. help!

Hi. Thanks for your help. I took an IRA distribution earlier this year because I knew that my husband was going to have his job eliminated sometime during the year. He worked for DHL which is leaving the country. I used it to pay a variety of bills including credit cards so that we could live on one income. At the time I was a consultant without a full-time job and 58 years old. Do any exceptions apply to me? Thanks for your help.

Can I take a distribution from my IRA without penalty to purchase an investment property? I own my owm home currently

As a follow-up to my previous question, I understand that I need to pay taxes on the IRA withdrawal, but it seems like in this economy the 10% penalty is a little stiff. Thanks!

My sister took 4000.00 out of her IRA to pay taxes on a lump sum she took out the prior year. Does she have to pay tax on this? she is and was disable when she did this.

has the treasury or IRS done anything to reduce penalty or reduce taxes on an early withdrawal from IRA’s. I also took money from my IRA to pay bills so we would NOT go to foreclosure or bad credit with our creditors

Jim, age 30, made Roth IRA contributions of $4,000 between 2005 and 2008. In 2009, Jim’s Roth IRA has a balance of $3,500 (he lost money). Jim decides to close his Roth IRA in a non-qualified distribution that year. Since the distribution is non-qualified, will owe taxes on his Roth (losing balance) of $500? Understanding that since the distribution is non-qualified, Jim would have owed taxes on any earnings above $4,000, and would have had to pay tax on that (earned) amount at his marginal tax rate. In addition, since the distribution took place before Jim reached age 59 1/2, and since Jim did not meet any of the exceptions, Jim would have bee assessed a 10% early withdrawal penalty on any (over $4,000) earnings. But, again, what if there was no earnings and he actually “withdrew” less money than he contributed over the lifetime of the fund (with any plus or minus interest earned over the ifetime of the fund)?

Mr. Perez,
I hope you can help me with this situation. I left a previous employer where I had an IRA. When I left that company, I cashed out all money in my IRA. I am 56 years old and not disabled. Will I still have to pay the 10% penalty for early distribution?

Understand that taking money from IRA is taxable and has the 10% penalty. Is there any tax deduction that you can take if taking the money results in a capital loss on a cost basis?

Good Morning this is more of a question than a comment. Is there a special early distribution exception rule for seperated or divorce individuals? I don’t see it on your list of choices. But, I think there is one.!

Hello Mr. Perez,

I haven’t seen exactly this answer posted so I thought I’d post and ask. To make a long story short I need to deduct about $10,000 from my IRA. This is an early withdrawal, subject to the penalty. I gross $50,000 per year. I am trying to determine what percentage to deduct to help with taxes in advance so I am not left with a huge tax bill next year. I would rather err on the side of setting aside too much. I was guessing about 30% but wasn’t sure if that was enough. I live in Florida and will not have to pay state/local taxes. Any thoughts? Your help is appreciated! Thank you. ~Jonathan

I had medical expenses last year exceeding 7.5% of AGI. I was not aware that I could have taken an early distribution from our IRA to cover them. I paid for them from an equity line. I already filed 2008 tax return and itemized. I wondered if I could still take the distribution up to April 15th or did I need to do it before Dec.31st? I know I would have to file amended (of course). Do they allow you to take it after the year ends?

I took out a large sum to pay for two children higher education as I could not get a loan. I am now doing my taxes and I see where I won’t get the additional 10% early withdrawal penalty but It put my income over the amount where I don’t qualify for any credits or deductions of the tuitions. It seems it would go on earned income as I used my entire ira to make sure they can finish school. My distribution was more than my income. Any thoughts or help as to how I can deduct something. I had over 50k in higher education. I only earn a68k a year with four children by myself.

Joni, Sorry to hear about your financial hardships. But presently there’s only exceptions for health insurance and medical expenses and current college expenses. Student loans and mortgage payments won’t qualify for the exceptions. Sorry.

Karin, sorry to hear about your husband being laid off. There are exceptions to the early distribution penalty for health insurance premiums and medical expenses. Those are the two exceptions that I think might be most relevant to your situation.

Robert C., yes, normally, distributions used to pay taxes are still taxable and subject to the 10% penalty unless the taxpayer is over 59.5 years old. However if she’s permanently disabled, she can avoid the 10% penalty, and possibly qualify for the tax credit for the disabled.

Lili, the government has not done anything to provide any tax relief for people who’ve needed to draw down their retirement savings due to financial hardship situations. I wish they would! Could be a good suggestion to send to your Congress person.

Jim, see my article on reporting IRA Losses. Basically, this should not trigger any taxes, and you could possibly take the $500 loss as a miscellaneous deduction.

Dottie, your situation will depend on exactly what type of retirement plan you had with your former employer. If you had a 401k plan, there’s no penalty since you are over 55 years old. If you had a SEP-IRA, then the same rules as other IRAs apply, and the distribution is subject to the 10% penalty if withdrawn before you reach 59.5 years old. If you had a SIMPLE-IRA, the penalty may be 25% if you began participating in the plan less than 2 years ago.

Mark M., see my article on Claiming IRA Losses. Depending on the type of IRA and whether there’s basis, the distribution could potentially avoid tax and penalty, and you might be able to claim a loss deduction. However the math works out differently for different types of IRAs.

Rene, there are no special rules that apply to separated and divorced individuals.

Jonathon, you’ll need to know your marginal tax bracket. Here’s a list of the 2009 tax rates by filing status. Assuming you’re single, I would say you’ll be in the 25% tax bracket. So I’d set aside 35% in tax withholding (25% + 10% + 0% for state).

Terri, the distribution and the medical expenses would have to occur in the same year. Since the distribution would occur this year (’09), and the medical expenses were incurred last year (’08), the IRS would disallow the penalty waiver. Sorry

Adriene, you’re getting caught with the phase-out limitations based on income for the education credits and deductions. Basically there’s no way around this. As a general rule, it rarely makes sense to use retirement funds to pay for college. It will be better for you, financially and taxwise, if the kids get student loans or grants or work study, and allow you to keep your savings for retirement.

Do student loan payments qualify for education expenses under the hardship requirements for early withdrawal under the 403(b) regs? I don’t think they do but I cannot find an interpretation of the reg. Any help would be greatly appreciated!

I cashed out my traditional IRA this year. A friend told me that I have 3 years to claim it on my tax return. Is that true?

Hello William Thank you for sharing your expertise! My husband was laid off from two jobs in 2008. He just found employment at below minumum wage as waitstaff and will have a W2 from that job. I have a full and a part time job. The full time job provides health ins. We have a daughter in college, one grad from college May 2009 and the youngest is a high school junior. I will be 59 Sept “09. My husband will be 59 March “11. His unemployment will end Dec “09. Our FICO score is 780. We are trying to remortgage despite the loss of 66% of our income. Our home’s LTV ratio is 45%. Besides eliminating any expenses we can, is there anything else we should consider if he continues to be unemployed past Dec “09? We have about $250K remaining in IRA’s. I am afraid that my financial knowledge is not up to the challenge we are facing. If my husband does not find a job earning close to his previous income before his unemployment ends in Dec “09, could we withdraw from the IRA money in Feb 2010 when I am 59.5 without the 10% penalty? We are paying a portion of our middle daughter’s college expenses in cash and alternative loans. We are current on all our bills at the present, but I want to have a worst case stategy to avoid foreclosure and a lower credit score if our income does not rise by early 2010. Thank you so much for your answer!

i am 77 and i have an IRA CD coming due soon..what are the tax implications if I w/d the entire balance?

Hello. I need to know if there is a way to avoid the 10% penalty for early withdrawl from an IRA Savings Account. I need to pay tuition and college expenses with that money.
I am employed part time, and will be returning to college in June at the age of 45.
I will be paying for individual health insurance as well.
Thank you, Trish

I took money out of an IRA last year and the bank told me I had 60 days to put the money back, which I did. Is there something I need to file with my taxes to prove that I put it back?

I had to take an early withdrawl from my 401 k in 2007 and it was with penalty plus taxes then on question 30 of form 1040 this year I notice it says in the credit sections penalty on early withdrawl so is that asking me to enter the penalty i paid in 2007 or what is it asking

I’m using a tax software for my taxes. I entered my 1099R for the withdrawal of funds I used towards my new home (first-time home buyer). After I entered all of the information, it looks as though the “income” is being taxed. Do I not enter the information and just keep documentation of the transactions? (Showing the money was used in the purchase?) I’m not following exactly what I need to do given I qualify to not have it taxed… Thanx in advanced!

Dear Mr. Perez,

I would appreciate your help with an issue regarding three withdrawals/distributions from my 401K.

I am under age 59 ½, but I am disabled and also paying well above 7.5 times my adjusted gross income for medical needs.

On my tax software, it asks you where the distribution is from? I received ONE 1099R that states the amount is total distribution and has zero as taxable amount and has a “G” as distribution code. The other TWO 1099-R show the amount taken as taxable and the distribution code as 1. Do these three amounts go under disability benefits? Why are the codes different. All funds were used for medical.

Thank you so much,
Laura

Mr. Perez,
I am about to receive a lump sum payment in lieu of a pension of about $14,100 ($11,000 after taxes).
Can I put it in an IRA and withdraw it at 55 (or 56, or 57) without a penalty? I’ve heard you can withdraw it as long as its distributed in equal monthly amounts over five years.
Thanks for your response

dear mr perez
i know i am under the gun here re: tax time…
however i am confused about my ira…
last year i took a complete distribution of my ira…to pay off my credit card account…and it had been doing nothing for many years.
i am not money savvy ..i did not invest it in anything else.
my income for 2008 is $2583….
i am would like to know if i must file this withdrawal…and if i will have to pay a fee for early withdraw…and can i pay that tax over a period of payments as i have no savings ????
many questions…hope you can help.
thank you

unemployed from 10/20/07. Exhausted my 401k in 2008. Separated in 08, paying child support,left with enormous credit card debit, living expenses. But had no medical expenses. Mental depression to the max. Is there a reason to continue?

Hi William,

Thanks for this article, and for answering everyone’s questions.

Suppose I were to take an early distribution now, for the actual purpose of paying off credit card debts, but then attended school later – in the Fall? Would I still qualify for this exemption from the Early Distribution Tax, or would it be considered something sneaky by the IRS? In the latter case, do you think it would come off, or fall under scrutiny?

Does tuition paid at foreign universities qualify? Where can I obtain a list of recognized educational institutions, or a legal description of what is considered one?

Lastly, when is the Early Distribution Tax paid? — at the moment of distribution, or with other income taxes by April of the following year?

Thanks very much!

I am considering taking a large sum about 25000.00 outof my traditional IRA. I am 55 and know that I have to pay a penalty and taxes. Could you please give me a general idea of what percent of taxes to withold. I figure 30 percent should be enough but I live in New York State and don’t want to be short for either Fed or State.
Thank you.

Husband 65, soon to be 66. Has IRA dated 6-06, wants to withdraw because of loss, was $30K is $26K as of this month. Would rather cash in than lose. What is penality if any? Or is it only the due taxes and then the monies withdrawn to be claimed as income next year for IRS? Thank you for your response.

I am putting myself though school and working part time. When I changed jobs in 2006 I didn’t roll over my 401k from the old job. My 401k from the old job has since become an IRA. I would like to take the money out to help pay for classes. How do I go about avoiding the additional levy? Thank you.

I am leaving my current job to go back to graduate school full time for 3 years. During this time I will not be working. My questions are: What are my options for my 403b? Can I leave it in its current place with my soon-to-be former employer even though I will no longer be making payments? Or do I have to move it? Can I even roll it over if I won’t be making payments or do I just have to take out all the funds?

Mr. Perez,
I have to take an early withdrawl from my IRA to cover expenses and pay off debt that I can’t handle anymore. All other assets have been sold off and this is my last asset to save me from ruined credit and keep my afloat for the future. I have $120,000 of which $27,000 are non-deducted contributions. While I understand I will have to pay the 10% penalty, I have losses in the account. Does that factor at all into the distribution or the entire distribution less the non-deductible contributions are considered income? Please help me to understand.

My husband because withdrawing from his 401K plan at 55 because he left his job. This was 2 years ago. We would like to make a lump sum withdrawal to put a roof on our house and well as a few other repairs. We were told we would have to pay the 10% penalty on the total amount he has withdrawn over the past two years as well and the approximately $20,000 we would like to withdraw now. Is this correct?

When my husband died 14 years ago, I rolled over his traditional IRA account into mine – we both had seperate IRA accounts. I am 57 and lost my job last year – I would be fine, however if I did not have a mortgage payment and would like to withdraw emough money over the next 2 years (to minimize taxes) to pay off the balance on my house. I do not want to wait – I seem to be getting farther and farther behind and cannot refinance as I have no income to report. My question is: Since the IRA money left to me by my husband would not have been subject to the 10% penalty when he died, is it subject to that penalty if I withdraw it 14 years later – after rolling it into my IRA account?
I would really like to start paying it down by the end of this year, that way the money I draw out this year will not be in a high tax bracket.

My 20 year old daughter is away at college and has developed severe headaches and vertigo. She has gone to a GP twice and they referred her to a neurologist who requests an MRI. We have no insurance, my income is 32k and we are both full time students. Can I cash in my IRA 16k without a penalty to pay for the medical and school costs.

i am buying a coop. i took 10k out of my traditional IRA toward buying it. as you know, coop boards want to see a lot of cash in the bank. i did not need the 10k to close. can i put the 10k back into my traditional IRA and not report it as income for my taxes?
thanks.