I did a total IRA withdrawal and I was never told of Penalty & Taxes by the Financial Institution..
I am wondering if anyone has any information/help on what to do about my current situation. I made a withdrawal of (the full balance) of my IRA last March/2015. My plan was to purchase a home. That home fell through and I never purchased it (hense.. no write-offs, no nothing). I was told (because of my Disability) that I would owe 10% of my withdrawal in Taxes; and I opted to pay this Tax Season; together with the home purchase write-offs.
The major problem is I never got that house or any other. I also never touched the money I took out. It is sitting in a (checking account) and now it seems I owe (almost 4x as much $$ as I thought I would). I never rolled it back in to the account and I am 57 and that was all I had.
I was not told of the (early withdrawal), or the fact that my withdrawal amount would be (added) to my small ($15K) Disability income/Yr. So, instead of owing $4,800.; which was already too much to take.. I now see (from being on “Turbo Tax”, that I would owe around $14K!!!
Ps. I never sent the form through, I froze actually! I also never “filed for an extension”, because I was going to pay the $4,800. (for my foolish mistake of not paying attention to the “60 day rollover period” The house purchase fell through about 80 days in to it. I put my money in the same bank that was giving me the loan and they would not give me a pre-approval letter without seeing my money on hand.
I would love someone to be able to help me out, or at least give me some insights into any possible options (other than paying all this $$ into the IRS). Legally, of course..
Blessings,
Monica
(please only contact through my email, or right here on this website)
Thank you!!
Permalink Submitted by Alan - IRA critic on Wed, 2016-04-27 18:12
Your big mistake was not getting advice last year when you had options. Of course, you had 60 days to roll the funds back into your IRA, and 120 days if the purchase that fell through was for a qualified first home. About the only relief available now is a possible exception to the 10% penalty. That depends on whether your disability meets the definition of total disability. If so, you can file Form 5329 with your return and claim the disability penatly exception. Not clear where the 4,800 figure comes based on your limited income without the IRA distribution.Note that requesting a letter ruling from the IRS to still allow you to do the rollover by extending the 60 day period is now very expensive, perhaps around 16k including legal expenses. It does not make sense to spend that much when the chance of a positive outcome is slim because it seems that procrastination was the main reason you did not roll the money back to the IRA. If you had a bona fide medical reason such as a serious illness you might have a good chance to get the ruling, but you would still be out the 16k estimated cost of the ruling so you would not gain anything vrs paying the tax.
Permalink Submitted by Monica Restuccia on Wed, 2016-04-27 22:27
Hi Alan,Thank you for taking the time to respond. I will clarify a few things that I didn’t mention previous.. I got the $4,800. (est.) from the fact that I withdrew $48,800. I was told that I could pay the 10% tax (which is what he said my amount would be (with the Disibility status), or opt out and pay later. I told him I would pay later, once I had my house and it’s write-offs and that was that. This is the first I’ve heard of the 120 days, if the money was for a first time home purchase (which it was). That house did fall through, because of it’s (Inspection & needed repairs) and by that time it was already June of 2015 and I knew I missed my 60 day time limit and just felt grateful I didn’t buy that house. So, there’s another issue I wasn’t told about; the 120 days + 60 more if needed!On top of all that, the “Turbo Tax” form; which I never submitted was (adding the $48,800. to the annual Disability amount, of $15K) and now putting me in a larger tax bracket. I researched on my own about the form 5329 and with all the skills I have (figuring out all of that legal reading of it’s instructions and then working with the numbers); I put it aside and started calling around for help. I kept hearing there was nothing I could do about it now; but I don’t believe that. There is ALWAYS something, it was an honest mistake. I remember when I was taking some law classes in college, one of the Instructors said “There is an Exception to Every Rule” I took that literally, I hope I’m right.. I even called the Fin. Inst. and told them how I wasn’t told any of this and now I’ve got a mess. I told them I know their calls are all recorded and I hope I can get a copy of it in a transcript form and I was told “not without a subpoena” Anyway, the call went downhill after that; I knew that lady could “care less” about me.In regards to “requesting a letter ruling from the IRS”; I have no interest in going that route.Thank you for caring!Blessings,Monica