I have been out of work for about a year and have been taking money out of my IRA account. I am
51 years old. Obviously, I needed money to pay my bills (family of 4). Is there any hardship clauses
that will ease my taxes due? There must be other people in the same boat?
Oops on the answer above, I meant to say there is no penalty for funds used to pay health insurance premiums if UNemployed. You don’t have to trace the funds to the premium payments. If your paid $9,000 for health insurance while unemployed and took $10,000 from the IRA in the same year – you could exclude $9,000 from the 10% penalty but not from income tax.
[u]Medical insurance[/u]
NOTE, all of the following conditions must apply for this exception (ie. no penalty) to work for you:
*You lost your job.
*You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.
*You receive the distributions during either the year you received the unemployment compensation or the following year.
*You receive the distributions no later than 60 days after you have been reemployed.
http://www.irs.gov/publications/p590/ch01.html#en_US_publink1000230896
pko
Permalink Submitted by mk foss on Tue, 2010-03-30 16:38
Unfortunately there is no tax relief for financial hardships. IRA penalties for withdrawals before age 59.5 do not apply for funds used to pay health insurance premiums if self-employed or the higher education of the IRA owner, spouse or descendant. If there are large medical expenses, there is relief from the 10% penalty to the extent they would exceed 7.5% of gross income.
If you can’t pay your taxes – complete the return first, then contact IRS about a payment plan. It’s also possible to do an offer in compromise to reduce taxes but you might need a specialist who can get your through that process.