Form 5329

[Christian]

A client who had large uncovered medical bills and was out of work for several months last year has now thankfully returned to health and work. He needed to tap an IRA account in order to pay for these. There is of course the medical exception on this form. My question comes down to this. Are the medical expenses he can use to qualify for the exception ONLY those which exceed 7.5 % of his adjusted gross income. I am assuming these expenses will be less than the $10,000 he took from his IRA account. Do you show those expenses on line 5 of the exception list ? Is the 10% penalty then computed on the remaining portion of the $10,000 which will not be covered ?

 

[GLJEANNE]

Sounds right.  Instructions for 5329:
05
Qualified retirement plan distributions up to the amount you paid for unreimbursed medical expenses during the year minus 7.5% of your adjusted gross income (AGI) for the year.
 

[Christian]

That was my reading as well. Since he took around $10,000 from his account I am assuming I would put the figure for example $3,000 on line 5. Place 5 as the exception on the exception used line on the front of the 5329 and the ATX software will compute the 10% penalty on the $7,000 unspent on medical expenses. Wallah !

[kathyc2]

If he's married, check if this might be a situation where MFS has better results.