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Christopher Phelps
Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience:  CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
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Customer Question

Single,53, on Social Security Disability since 2/2002,( benefit check only source of income APROx. $18,000).(0WN HOME CLOSE TO $4,000.. MORTGAGE INTEREST) ($1,586.00 REAL ESTATE TAXES). i'M REDEMING ALL SHARES IN A ROTH IRA VESTED TWO MONTH, APROX>. $2,600.00, TO CATCH UP ON HOUSE PAYMENTS AND DOCTOR BILLS. how much should I have with held from funds from IRA? Do you thinkg I should be filing fed./State tax returns?MICHIGAN RESEDENT>>NO this not a joke<<<
Submitted: 11 years ago.
Category: Tax
Expert:  Christopher Phelps replied 11 years ago.

Yes, you should file income tax returns for both the U.S. and MI because your gross income exceeds the filing threshholds (i.e. must file if gross income exceeds $7,950).  The only part of your Roth IRA that may be taxable is the amount of earnings withdrawn (i.e. Total value of account withdrawn less all non-deductible contributions made). 


However, given that your income is mostly social security benefits and your available deductions (including medical expenses), I expect that you will not have any tax liability for federal or MI purposes.  Thus, do not withhold any taxes on the Roth IRA distribution.     

Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thanks Mr. Phelps for the information. I was under the assumption by other sources that if I am recievng SSDI, and the amount was under $33.000.00 I did not have to file. Is the mortgage interest deductable? And also,
wouldn't you think I should get some of my State Realestate tax back> My Mother gets most of her taxes back, but she recievs less than $7,980.00 in SS and my Fathers pension survivors benifit ($35.00 & health coverage). . Of course this is Michigan, I could unerstand you not knowing MI lae. I guess I should just file and find out about the State taxes.Ken Nanys
Expert:  Christopher Phelps replied 11 years ago.

Generally, social security benefits will only be taxable to the extent your "provisional" income exceeds the base amount of $32,000.   You are correct in that your benefits will probably not be taxable, however, social security benefits because they MAY be taxable are still considered to be part of your gross income for purposes of determining your filing requirement.   Thus, because the benefits you receive exceed the filing requirement threshold (i.e. $7,950) you have a filing requirement, but likely no tax due. 


 


Should any portion of your Roth IRA distribution be taxable because it constitutes a withdrawal of earnings in excess of your non-deductible contributions,  since you are not yet 59 and 1/, the 10% early distribution penalty will apply to this taxable portion (if any) of your Roth IRA distribution.  This also creates a filing requirement.  


However, you may be exempt from paying the penalty tax on the taxable portion of your Roth IRA distribution (if any) if you are considered to be totally and permanently disabled (i.e. your disability is expected to lead to death or last for more then 12 months). 


If you do not qualify for this exception you may qualify for the medical expense exception.  To the extent you have deductible medical expenses (i.e. medical expenses in excess of 7 and 1/2% of your AGI) you may exclude your taxable Roth IRA distribution from the 10% early distribution calculation.   You need to fill out Form 5329 when you file your tax return in the year you make the Roth IRA distribution.


You appear to be eligible for the homestead property credit.  When you complete your MI tax return make sure you complete Form MI-1040CR to claim your credit.  See the following website for copies of the forms and instructions.


http://www.michigan.gov/treasury/0,1607,7-121-1748_1876_1913---,00.html

Christopher Phelps, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2710
Experience: CPA, CFP, PFS, Tax Practitioner 21 Years, Member AICPA/CSCPA Tax/Financial Planning Committee Member
Christopher Phelps and 2 other Tax Specialists are ready to help you
Customer: replied 11 years ago.
Reply to Christopher Phelps's Post: Thank you Mr. Phelps, you have been very helpfull. Bonus $5.00 Ken Nanys Dearborn, MI

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