Avoiding 10% Penalty for paying taxes with IRA funds
If someone pays an IRS Federal income tax bill with funds from their IRA and they are under the age of 59 1/2, will they still be subject to a 10% federal penalty for early withdraw?
If someone pays an IRS Federal income tax bill with funds from their IRA and they are under the age of 59 1/2, will they still be subject to a 10% federal penalty for early withdraw?
Permalink Submitted by Alan - IRA critic on Fri, 2014-04-11 00:30
Yes, unless they have another exception to the penalty other than being 59.5. One of those other exceptions is an IRS levy of the IRA where they require payment of taxes directly from the IRA. If you meant that the IRA owner took an IRA distribution and had taxes withheld, the same penalty exception could be applied to that. If they qualify for an exception and the 1099R is coded 1, then the exception can be claimed on Form 5329 by entering the correct code number.