Unemployed IRA distributions

Submitted by David Sloper on Tue, 2014-08-19 16:11

Are there rules which allow for an individual who is collecting unemployment to waive the 10% early distribution penalty (tax) if they have been collecting unemployment for 12 weeks?

Thank you.



Submitted by Alan - IRA critic on Tue, 2014-08-19 18:31

  • Yes. The 12 weeks of UC must be consecutive. The amount of the penalty waiver only applies to amounts expended on health insurance for the individual, spouse and dependents. The expenditures and the IRA distribution must be in the same year. That year can either be the year the UC was collected OR the following year. Distributions cannot be taken more than 60 days after re employment. Be careful because of these tricky timing rules. The penalty waiver is claimed by filing Form 5329 and indicating exception code 07 on the form.
  • There is also a separate penalty exception for total healthcare costs in excess of 10% of AGI that will include premiums, but the premiums cannot be claimed twice. That means if you qualify for both, calculate the UC exception first, and do not include those premiums in the other exception.

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