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I left my Job in July 2007. I wanted to take a few months

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I left my Job in...
I left my Job in July 2007. I wanted to take a few months off and I rolled over my 401K into a traditional IRA at that time. I did withdraw money in 2007 and paid taxes and penalties on that amount......I have been trying to find work again since November 2007, but no luck. I have taken out more in 2008 just to live. I have been paying COBRA all this year also. I never collected unemployment. Is there a way that I could have the 10% penalty waived still even if I never collected?
Submitted: 8 years ago.Category: Tax
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12/2/2008
Tax Professional: Bill, Enrolled Agent replied 8 years ago
Bill
Bill, Enrolled Agent
Category: Tax
Satisfied Customers: 3,153
Experience: EA, CEBS - 35 years experience providing financial advice
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The exception to the penalty for paying for medical insurance requires that unemployment benefits must have been collected for at least 12 consecutive weeks so you would not be able to claim that exception. If you are going to continue to need to withdraw funds there is an exception to the penalty if withdrawals are considered substantially equal period payments. There are 3 different methods for calculating the amount of the withdrawals and once the payments begin they must continue for the longer of 5 years or until age 59 1/2. Once an annual amount is determined under the amortization or annuitization methods, additional withdrawals from the same IRA account cannot be made until the 5 year period or age 59 1/2 requirement is met.

 

See pages 53 and 54 - http://www.irs.gov/pub/irs-pdf/p590.pdf

 

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Customer reply replied 8 years ago
I don't collect equal periodic payments. Just withdrawals to have money until I am once again employed. I am running about quick...too bad,there was no other way. My husband does not make enough money to support us...I am the main breadwinner. Is there any other way? Some kind of hardship thing? This was just not for my medical premiums but also to survive. If there is nothing I can do, that's okay, I'll pay penalties. I was just trying to find out if there was some loophole here. Pam
Tax Professional: Bill, Enrolled Agent replied 8 years ago

Unfortunately there are no exceptions to the 10% penalty for hardships. There is a remote possibility that the penalty could be waived on some withdrawals if Obama follows through on a proposal he made during his campaign. However, since the election is over there has been little discussion about this. See the link below:

 

http://www.honoluluadvertiser.com/article/20081013/BREAKING01/81013017/-1/RSS01

 

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Tax Professional: Bill, Enrolled Agent replied 8 years ago

I overlooked an exception that may be able to reduce some of the penalty. The exception is for medical expenses (including medical premiums) that exceed 7.5% of your adjusted gross income. So for example if your total medical expenses were $9,000, your IRA withdrawals were $20,000, and your AGI (including the IRA withdrawals) was $50,000 then the penalty would not apply to $5,250 [$9,000 - $3,750 (7.5% of $50,000)] of the withdrawals.

 

See page 53 - http://www.irs.gov/pub/irs-pdf/p590.pdf

 

Bill
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