Discussion:Medical expense exception to early withdrawal penalty from qualified plan
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Discussion Forum Index --> Basic Tax Questions --> Medical expense exception to early withdrawal penalty from qualified plan
Discussion Forum Index --> Tax Questions --> Medical expense exception to early withdrawal penalty from qualified plan
| 30 October 2007 | |
| Spouse takes early distribution of $5k from a retirement plan to pay for $5k in unremibursed medical expenses. She files jopintly with her husband. In figuring the amount of the distribution she can exlcude from the 10% early withdrawal penalty, she can exclude the total unreimbursed expenses less 7.5% of AGI. Does "AGI" for purposes of the calculation mean "her portion" of the joint AGI or does it mean "joint AGI". The first will allow her to exclude some of the early distribution from the 10% penalty. If she has to include her "husband's portion" of AGI in the calculation she won't be able exclude any of the early distribution from the 10% penalty. | |
| 30 October 2007 | |
| Can they then do married filing separately? I would think this is based on the filing status and not individual AGI if they are different. Can she itemize MJS? | |
| 30 October 2007 | |
| Conrad - you may want to take a good tax class like H & R Block gives to beginning tax preparers to learn about AGI. Good luck in your tax career - but don't skimp on education | |
| 30 October 2007 | |
| Kevinh5, I take from your humor/sarcasm, your answer is "no" to my question. I didn't think I could do it the way I would like to do it, but I could not find anything specific in the code, thus my reason for posting the question. Sandysea, I think it is based on filing status but again I thought I would throw it out there. Thanks for responding. | |
| 30 October 2007 | |
| Premature distributions from retirement plans are not subject to the 10% penalty only to the extent they don't exceed the amount allowable as medical expense deductions under IRC 213.
Unfortunately, I reckon if the spouses filed as married filing joint, in computing the allowable medical expense deduction they'd look at the AGI of both taxpayers -- not just the wife. Had they filed separately the wife's AGI would have been used in computing the 7.5% limitation. Check into other possible exceptions to the 10% penalty or whether some of the distributions came from after-tax contributions which wouldn't be included in gross income of taxpayers... | |
| 30 October 2007 | |
| Well the wife is disabled but I think she would need to get a letter from her doctor that says she is unable to work and her condition is expected to last more than 12 months. I will see if she can go this route. | |
| 30 October 2007 | |
| But when did the disability begin?
Is the 10% penalty so large that it is worth the time and effort to abate it? | |
| 30 October 2007 | |
| We're only talking $360 penalty. The disability began in December 2005 and she is still not able to work so she was disabled during all of 2006, the return year I'm working on. | |
| 30 October 2007 | |
| If it were me, then I would let it lie unless it is an easy abatement or unless you will write down their return for the savings. There comes a time that the billable amount they will pay to save is not worth it.....if indeed they are going to be MFJ, then you may lose the battle....will the clients love you more for saving them 360.00 and you and the doctor charge 400.00? mho :) | |
| 31 October 2007 | |
| Conrad
If you decide to go your route of disability, be aware - to avoid the 10% penalty, you MUST satisfy the specific definition found in ยง72(m)(7) (7) Meaning of disabled. For purposes of this section , an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require. | |
