"BM30003700" <bm30003700[at]aol.com> wrote:

- quote -

Yes.

- quote -

Forgive my bluntness, but I assume by referring to your
client that you are not a tax professional but some other
legal or financial services professional? I'm sure the IRS
pub covering retirement income would address this issue. To
answer your questions, the distribution is only excepted
from penalty to the extent you itemize and have deductible
(and can deduct) medical expenses.

I would also question whether the plan allows for an
inservice withdrawal which would be as big a hurdle as
avoiding the penalty.

--
David M. Woods, EA
Boston, MA 02109

Postings here are general information only and not to be
relied upon as advice.

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bm30003700[at]aol.com (BM30003700) writes:

- quote -

Not quite. See page 27 of IRS Publication 575.

There's no tracing requirement; it's straight math based on
the total tax year. An example:

AGI $100,000
Early distribution: $15,000
Total Medical expenses: $20,000

7.5% of AGI is $7,500, which you subtract from the total
medical expenses. The resulting amount, $12,500 is the
amount of the distribution that's penalty-free. You pay the
early distribution penalty on the remaining $1,500.

Phil Marti
Topeka, KS

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bm30003700[at]aol.com (BM30003700) wrote:

- quote -

If this is a IRC Section 457 plan, there is no 10%
additional tax for withdrawing funds before one reaches age
59 1/2. IRC Sec. 72(t) (10% add'l tax clause) only applies
to qualified retirement plans.

Alan
http://taxtopics.net

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a client of mine has a deferred compensation plan and wishes
to have all or part of the money in the plan distributed to
pay for medical expenses, if the distribution is not subejct
to early distribution penalty.

i believe penalty is not imposed on early distributions from
some plans if the distribution proceeds are used to pay
medical expenses listed on schedule a.

is this exception also applicable to deferred compensation
plans?

is there a publication that speaks directly to this
question, ie, early distributions, specifically from
deferred compensation plans, to pay medical expenses?

is there any further reuqirement, beyond being used for
medical expenses, for this exception to apply? does the
person need to itemize, for example?

thanks much for any and all help

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