Under 59 1/2 distribution penalty waiver

Submitted by Barbara Kong on Wed, 2015-12-09 01:05

Our client is under 59 1/2. For the past 3 years, he got behind on his taxes because he was seriously ill and his income was drastically reduced.
This year, he took a $50k distribution from his IRA to catch up on his past due taxes. the IRA was the only account that he had.
Based on his continuing illness, would he qualify for a waiver of the penalty for a pre -59 1/2 distribution?
Would he have to appeal to the IRS to get a waiver?
Thanks



Submitted by Alan - IRA critic on Wed, 2015-12-09 01:20

  • There is no separate waiver provision for this. Had the IRS levied the IRA, there would be no penalty. There is also a penalty waiver for payment of unreimbursed medical expenses in excess of 10% of your AGI. This also includes dependent’s expenses and you do not need to itemize to claim this exception on Form 5329. In addition there is also an exception for medical insurance costs, but there is no doubling up with the medical expense exception since medical insurance is also a medical expense.  These possibilities should be investigated, and they might produce a penalty exception for at least some of the 50k distribution.
  • Another possibility is the disability exception, but only if this is a disability of long term duration or is expected to result in death. If this exception could be used, it would cover all distributions taken after the date of the disability determination.

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