rollover to IRA, then withdraw

[ajuroff]

I have SO many clients this year that have lost their jobs, homes, retirements, etc. It's crazy. And I keep reading about 3 situations I just received this morning and am getting myself confused so I'm asking if someone can clear my head.

Client works, has a 401k. Company closes. Part of loan on 401k that is not repaid back is show on 1099, code 1. Another 1099 show client rolled over remaining 20,225.00 into an IRA. Then client has a 1099 for early withdraw from IRA for 18888.88 with code 1.

So he rolled over 401k into an IRA, then withdrew IRA, all within 2 months. (left a little bit in the IRA)

I get the loan, I get the rollover, it's the contribution to the IRA, then the withdraw 2 months later that is getting me for some reason.

I'm losing it I guess.

Can someone help me out here? It would be much appreciated.

[TAXBILLY]

There is no contribution to the IRA.

taxbilly

[ajuroff]

sorry, wrong wording. I'm not sure how to treat the withdraw from the IRA. As a normal early withdraw? All taxable? He has no "non-deductible contributions" also, correct?

It's strange that I had three clients all today with the same situation.

[Bart]

As a normal early withdraw? All taxable?

Yes

[TAXBILLY]

Agree with Bart. See if penalty exclusion applies to certain situations.

taxbilly

[kcjenkins]

Yes, they do the rollover hoping that they get a new job and can leave it there, then, when they decide that they need to spend it, they take it back out. It's too bad that they do not talk to us first, because sometimes, at least, proper planning would give them at least some possibility of excluding some of it from penalty. But we don't usually hear about it in time.

Had one who used his IRA money because he "did not want to lose money by cashing his CD [regular non-IRA savings] early"!!**!!! You know, that darn 'early withdrawal penalty? That 2% 'early withdrawal penalty, that he avoided. GRRRRRRRRRRRRRRRRRRRRRrrrrrrrrrrrrrrrrr

[ajuroff]

I'm in an area that is famous for all the factories closing. (Elkhart, IN, which is 20 min. or so from me has an unemployment rate of something like 15%) All the factories but one in the town I live in have closed. Alot of people are living in MI and working in IN and now are unemployed. (lots of RV factories)

I guess I keep second guessing myself because the sentence "WHY WOULD THEY DO THAT" keeps running in my head. Probably because of what you said kc - "It's too bad they don't talk to us first"

So...now after talking to one of my three situations today - the guy tells me that he took out the IRA ($13,500) to rebuild his home. He said his ex-wife left the state and left him with the children so he had to add additions on to his home, which was originally a small one bedroom home. He says he has all the receipts to back it up...we'll see.

So, I'm checking out the "exceptions" to the 10% penalty. Instructions to the 5329 say "IRA distributions made for purchase of a first time home, up to $10,000". Publication 17 says "You use the distributions to buy, build, or rebuild a first home". What would be your idea of "rebuilding" a home? (with his wording, I'm thinking he's reading something or someone is telling him something)