- quote -

All of this depends on your total income and other factors.
The penalty is 10% of the amount withdrawn (i.e., about
$6K). It's figured as part of your 2004 tax return. The IRS
has Form 9465, installment agreement request, where you can
set up a payment arrangement for any part of the 2004 tax
that you can't pay by April 15, 2005.

If your medical expenses are high enough to be able to
exceed the 7.5% of income limit (about $4,500 if your only
income in 2004 was the IRA withdrawal), you can avoid the
penalty on medical costs you pay (or put on credit cards)
that exceed that. Example: your medical bills total $14,500;
after the 7.5% reduction, you can avoid the penalty on
$10,000: a saving of $1,000. If this is the case, and you
now have a job, consider getting all the elective medical
costs you can before the end of the year: eye exam, dental
work, etc.

--
Thomas E Healy, CPA, PC
1650 38th St., Ste 202W
Boulder, CO 80301
Please send email to: tom[at]tomhealycpa.com, since I block all email at my
newsgroup address.
phone (303) 443-1804
fax (720) 489-3772

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Jean S. Barto wrote:

- quote -

I get impression this was your only income for the year, right?

You didn't say what your filing status will be, single or
married. That will affect your eventual income tax
liability. And if you had 20% withheld for federal
purposes, or even 15% perhaps (based on your figures above
(60k and 10 k), it may not be so bad.

The exception for the penalty does not pertain just to the
fact you had medical debts, rather to what you paid for
medical care during the tax year. Big difference. So, if
you used, say, 8000 of your 60,000 to pay medical expenses
which you can then deduct on schedule a of form 1040, the
penalty is not assessed on "just" that 8000$. Which still
leaves a bunch.

The penalty is in addition to regular income tax, so when
you file the return and find a balance due, you can send in
a request for installment payment plan by April 15, thus
being able to pay over time at a rather good (IMO) interest
rate.

Just do NOT put off the day of reckoning however. It's next
April 15th.

ChEAr$,
Harlan Lunsford, EA n LA

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Jean S. Barto <jsbarto1[at]cox.net> wrote:

- quote -

Unfortunately, while the 10% additional tax on early
distributoons is called an Early Distriution Penalty, it is
not a penalty, but another type of tax. This excise tax
cannot be waived by the IRS. There are a very few reasons
for excluding IRA income from this 10% tax, such as high
medical costs, buying a first home, or being disabled, but I
do not see from your note any reason to exclude income from
the tax.

You can set up an installment payment plan with the IRS, and
pay over several years, or in some cases where the IRS
becomes convinced you will not have the money even after a
number of years, you can enter into an offer in compromise.
An experienced tax preparer will be helpful here.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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The penalty will be 10% of the withdrawal, 6,000. To take a
bite out of it, make an estimated payment by January 15th.

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- quote -

There are exceptions to the penalty if you are disabled or
over age 59 & 1/2. If not disabled, and no other exception
applies, your medical expenses, in excess of 7.5% of your
adjusted gross income, reduce the dollar amount on which the
penalty applies.

If, as you say, your adjusted gross income is $60,000, the
first $4500 of medical expense will not help.

Here are exceptions to the penalty:

It is made due to death or disability.
It is made in the form or certain periodic payments
It is used to pay medical expenses in excess of 7.5%of AGI.
It is used to purchase health insurance for unemployed individuals.
It is used for qualified education expenses.
It is used for first-time home buyer expenses of up to $10,000.

If you are single, with no other exemptions, deductions,
credits, and no exception to the penalty, you will owe
$5889. If there is an exception to the penalty, your refund
should be $111.00. This relies on the figures you give of
$60,000 and $10,000 withheld.

"Jack" - John H. Fisher - TaxService[at]aol.com
Philadelphia, Pa - Atlantic City, NJ - West Wildwood, NJ
My Newsgroups & Boards at: http://members.aol.com/TaxService/index.html

Where Ignorance is bliss, 'tis folly to be wise!=

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Early this year I cashed out much of my IRA to live on--this
was the only money I had access to. My IRA was a mutual
fund, and I opted to have money withheld for the taxes I'll
have to pay on the withdrawal.

As I understand it, I also will have a *penalty* charge to
pay when I do my 2004 taxes. Is it possible to pay the
penalty charge in installments? I doubt I'll have a lump
sum of that size to pay everything at once.

The total amount I took out, before taxes, was 60K or so.
The *withholding* amount was close to 10K, I think.

I hope someone can help with this. Also, I thought I heard
somewhere that the *penalty* charge could be *forgiven* if
there were many medical debts--which there were. Hopefully
this is the case--if not, the IRS will either have to be
happy with their penalty paid in installments, or I'll have
to go into *further* debt, or sell my house, to pay the
penalty!

Thanks in advance,

Jean in VA

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