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Discussion:Pension plan early distribution

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Discussion Forum Index --> Tax Questions --> Pension plan early distribution


Anne (talk|edits) said:

28 May 2007
Hi Everyone,

I hope you're all enjoying a day off. I'm working on a return for a client who used to be a partner in one of the big four accounting firms. So, needless to say, I'm a little intimidated. :-)

We are having a disagreement about a distribution he took from his KEOGH. He used some of the funds for his daughter's college tuition. It is not an IRA, that box is not checked. It's my understanding that only IRA withdrawals for higher education costs are exempt from the 10% penalty. He doesn't think he should have to pay since he could have rolled the pension into an IRA and then taken the money. I agree, he would have avoided the penalty that way, but he didn't do that; so it's my understanding that he still is subject to the penalty.

Any thoughts? If I've missed something I welcome any advice. If I'm right, I also welcome any advice in explaining it! :-)

Thank you

Kevinh5 (talk|edits) said:

28 May 2007
YOU ARE CORRECT. He should contact his financial planner and ask why he wasn't told the consequences when he discussed his plans. If he is his own financial planner then the extra tax is the cost of not having a competent financial planner.

You know what they say about a person representing themselves: "A person who acts as his own attorney has a fool for a client." The same goes for money.

Death&Taxes (talk|edits) said:

28 May 2007
Point out http://www.ustaxcourt.gov/InOpHistoric/HEWITT.TC.WPD.pdf the infamous Hewitt of Jackson-Hewitt case. It is an excellent example of the Court's regard in preserving form over substance even if it is not about your issue.

Anne (talk|edits) said:

28 May 2007
Thank you for your help, I really appreciate it. I'm going to email the client now....

Kevinh5 (talk|edits) said:

28 May 2007
DT, that case is very interesting, and perhaps the first documented time of negligence on behalf of the Hewitts for using the Jackson Hewitt tax software instead of using a competent tax professional. The fraud came about later, as this tax season showed.

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