IRA Withdrawal for Taxpayer Who is 65

[Chowdahead]

I've got a client who is 65, clearly over the 59 1/2 age limit. He should be able to avoid the 10% penalty correct? Also, does the distribution, which is about $26,000, have to be added to his AGI, thereby increasing his taxable income? If so he is going to be a bit surprised at his refund.

He had about $1,200 in federal taxes withheld from one of the distributions already. What sheet would I check to determine if he is being hit with the 10% tax, or would the software automatically calculate it due to his age?

[Kea]

I would hope the software would know to not add 10% penalty based on age.

Yes, it does get added to AGI. It is treated as regular income and does not get capital gains treatment. At least he doesn't owe the penalty!

[Margaret CPA in OH]

Did you remember to put in the client's date of birth on the filier's info tab? The penalty, or lack thereof, should calculate properly then.

[mcb39]

Also, it should be coded "7" Normal Distribution (Not subject to penalty).............

[Chowdahead]

Thanks. It was a code 7. Now I have to break the news to him that his entire AGI will go up... along with his tax.

[David1980]

And if it created taxable social security... At that age you really should be finding out the tax consequences when you do stuff like that. Er, before you do it I mean. :)

[mcb39]

And if it created taxable social security... At that age you really should be finding out the tax consequences when you do stuff like that. Er, before you do it I mean.

Had one like that yesterday. Everything was OK until they went gambling. Sure, the gambling winnings will be wiped out by the gambling losses on Sched A......(they always lose as much as they won)! However, $7653 in Gambling winnings pushed $5121 of SS into taxable income. If it wasn't for the $600 stimulus pmt that they didn't get last year, they would owe, even with a rental loss and lots of medical bills. They will NOT be happy.

[TAXBILLY]

Wait until the brokerage statements start coming in next week with large capital gain distributions from the mutual funds which had to sell stocks to cover the run on their funds.

I can hear it now: "But I never received that money". "Why do I have to pay tax on that?" "I lost money last year." "You must be doing my taxes wrong!"

That last sentence causes me to tell them they can take their tax crap (sorry, important tax documents) to HRB down the street where they would be confident in getting it done correctly (at a much higher price).

taxbilly