401K withdrawal to help aging parent
In 2005 I withdrew money from my IRA to help pay My aging moms expenses, I met the criteria, just laid off from my job, using the 401K money to pay for health Insurance.
Now I am being audited for not paying the 401K penalty fee in 2005.
Plus the IRS cant find the form 5329 form I sent in.
Why would I send in my 1099 forms if I was trying to decieve them.
Is there anything I can do to not have to pay the penalty fee?
Help!!
Waynetampabay
Permalink Submitted by Alan Spross on Tue, 2008-02-12 04:38
The IRS gets their own copy of the 1099R forms, but they need a proper 5329 on your tax return to match up to those forms.
However, you are using “401k” and “IRA” terms interchangeably and that is incorrect. In addition, different exceptions apply to distributions from each of these account types. For example, the exception for paying health insurance when you received unemployment applies only to IRAs, not to 401k withdrawals.
1) Did you rollover your 401k to an IRA in 2005?
2) Did you rollover only part of it and retain the rest for expenses?
3) Is your mother your dependent, ie did you provide over half her support for 2005? Did you pay something for her medical expenses?
When we can establish the amount of your distributions that qualify for exemption, a correct 5329 can be submitted since 2005 is still an open tax year. However, the portion that does not qualify will be subject to the early withdrawal penalty and the IRS will probably bill interest on that amount as well.
Please clarify some of this further.
Permalink Submitted by wayne bronson on Tue, 2008-02-12 08:24
MY IRA was with Raymond James & Associates
I withdrew $19555.43 in 2005
Back in 2005 I had tunnel vision, everything was focused on helpng Mom
My Cobra Insurance was 390/per month for 18 months thenI had no insurance and I paid my medical out of pocket, prescriptions, DR visits.
I used the extra money to have a CNAcome in to watch mom while I went to a temp job that paid me 8.50/per hour
The nursing agency charged 14.00 per hour which came to 560.00/ per week
Its a crying shame the IRS doesnt give a person a break for taking care of an aging person by themselves.
Wayne
Permalink Submitted by wayne bronson on Tue, 2008-02-12 08:28
PS
I am not what I would call disabled but I have had Tourtte Syndrome all my life
Which has prevented me from getting a few jobs I would have lked to have.
Wayne
Permalink Submitted by Alan Spross on Wed, 2008-02-13 05:34
The tax code does provide a series of exception to the penalty, but of course you must qualify for each of them separately. I still do not have the full info requested to provide a complete response.
1) Despite the syndrome, you are not considered disabled yourself. You would have to be on SSD to qualify for that exception in most cases.
2) From your answer, I guess there never was a 401k distribution, only an IRA distribution, so we can concentrate on IRA exceptions only.
3) You cannot get an exception for the Cobra or other medical insurance unless you were on unemployment for at least 12 consecutive weeks. This does not appear to be the case.
4) With respect to medical expenses you paid, you can only include your own unless you provided over 50% of the support for your mother that year. You can include the Cobra here if you do not qualify to count it above under (3), and also the expenses you paid out of pocket for your own medical. If you provided over 50% of your mother’s support, then you could claim her expenses as well for the CNA etc, however all these expenses that are allowed must be reduced by 7.5% of your AGI for 2005. Whatever amount this all adds up to can be shown on the 5329 to offset part of all of the $19,555.
While your intentions were honorable, if you do not research the implications of the tax code, then you are depending on the luck of the draw, but perhaps you were unlucky here as well. You CAN amend your 2005 return, and the IRS should be able to provide you with the 5329 that you did complete, to see if it was correct or not.
Permalink Submitted by wayne bronson on Thu, 2008-02-14 07:49
I was laidoff from my job in may 2004, that is when I rolled my 401K into an IRA
I started working at another job immediately and was laid off from there in Jan 2005
That is when I realized I would only be able to work a temp job to give me more time to help take care of mom
Mom was not listed as a dependent but I provided most of the household money for 2005
In 2005 she had the deed changed to include my name but she still held the homestead exemption.
Medicare paid for her medical expenses
My Cobra health insurance was 385 dollars per month for the year 2005
Sorry I didnt answer your foundation questions that you had in your 1st email till now.
[email protected]
Permalink Submitted by Alan Spross on Thu, 2008-02-14 19:20
Even if you were unable to claim your mother’s dependency EXEMPTION for 2005, you are still able to itemize medical expenses you paid for her if you provided over half her support. This gets into adding up eligible total support items to see you meet the 50% threshold. If so, she is considered your dependent for that year even if you cannot list her for the exemption, and even if YOU cannot itemize deductions on Sch A. In turn, that would qualify you for the penalty waiver for these expenses on Form 5329. See attached link for Dependents with respect to Medical expenses. It might also provide you with the ability to amend your 2005 return to increase any itemized deductions for medical costs:
http://www.irs.gov/pub/irs-pdf/p502.pdf
Permalink Submitted by wayne bronson on Sat, 2008-02-16 10:27
I think I have enough onfo to have a face to face meeting with the local IRS.
I realize its a 50/50 shot ,
Should I file a 1040X before I do anything else, from talking to the people in Atlanta IRS I dont trust their skills
After I got a notice that I was being audited about 401K, IRS sent me another notice asking about my mortgage points ,I was living with mom at the time in her owned home!!!!
Permalink Submitted by Alan Spross on Sat, 2008-02-16 19:49
I would file the amended return once you get the issues and math worked out.
However, there may be a problem if you were living with your Mom rent free but paying her medical costs unless you can show that living there was able to reduce the CNA expenses etc. In your support calculation for her, refer to Pub 17, p 31. The calculation usually boils down to some subjective issues, and in your case, the value of your living in her home may become one of them. It directly affects the 50% support calculation.
Permalink Submitted by wayne bronson on Thu, 2008-02-21 08:32
Alan
Yes I was living rent free while taking care of mom.
So now I’mNot feeling so confident
The last yeqr mom was alive 2006 she was under hospice care
I talked to hospice and they gave me a list of free services such as tax help
I think it would be worth my time to contact one of those agencies.
Thanks again
Talk to you later
Regards
Wayne