Discussion:IRA DISTRIBUTION-CODE 2
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Discussion Forum Index --> Advanced Tax Questions --> IRA DISTRIBUTION-CODE 2
Discussion Forum Index --> Tax Questions --> IRA DISTRIBUTION-CODE 2
MRBARRYTAX (talk|edits) said: | 16 February 2008 |
| NEW CLIENT WITH $18,000 IRA DISTRIBUTION-CODE 2 (EXCEPTION APPLIES).SINCE SHE IS 41 IN THE PRIVATE SECTOR, WHY WOULD SHE HAVE EXEMPTION TO PENALTY? SHE HAS PURCHASED FIRST-TIME HOME WITH
THIS MONEY AND EXPLAINED TO HER THAT ONLY $10,000 SHOULD BE EXEMPT FROM PENALTY? ANY BRIGHTER IDEAS? | |
| 16 February 2008 | |
| I would suggest you ask your client why she took the money.
She might qualify for the exceptions such as health related expenses, 1st time home purchase, etc. | |
MRBARRYTAX (talk|edits) said: | 16 February 2008 |
| SHE TOOK THE MONEY FOR FIRST TIME HOME PURCHASE, BUT TAX COMPUTER SYSTEM IS NOT GENERATING ANY FORM 5329, OF COURSE. CERTAINLY THE REMAINING 8,000 SHOULD BE SUBJECT TO PENALTY. ALSO, HOW WOULD IRS ASCERTAIN WHETHER THIS ADDITIONAL AMT IS TAXBLE OR WHAT CONDITIONS ARE PRESENT? | |
| 16 February 2008 | |
| it is probably all taxable - look for Form 8606
you should enter the 8,000 as subject to the penalty on form 5329 as you expected it to be | |
| 16 February 2008 | |
| Not sure how the irs would ascertain that, but unless other conditions apply then she can only claim $10k out of the $18k for the first time homebuyer exception. Surely the irs would react unfavorably to a claim on the 5329 of more than $10k citing that particular exception. | |
| 16 February 2008 | |
| I have no idea why the code 2 is in there, but if you enter a code 2 on the input sheet, then no 5329 is ever generated. no notice necessary. | |
| 16 February 2008 | |
| Fstein CPA, that would be wrong. Just because your software spits something out doesn't mean that it knows tax law. Garbage In, Garbage Out. | |
| 17 February 2008 | |
| Why not split it out in the computer system?
One for $ 10,000, with no penalty. One for $ 8,000 with penalty. | |
Death&Taxes (talk|edits) said: | 17 February 2008 |
| Is it possible she is going to take 18,000 a year on an actuarial computation....this is probably the only reason I see for Code 2? Could be a rollover IRA with a large balance? | |
| 17 February 2008 | |
| I would have client get back to company and ask why the code 2. Could be a mistake that will later be corrected forcing you to do a 1040x. Money used for health or home is not know by employer and should probably have been coded as early distribution (code 1) which you would then use form 5329 to get out of all or part of the penalty.
One other possiblity is the money was from a deffered comp plan. | |
| 17 February 2008 | |
| Better find out what kind of plan - to determine if ANY is exempt from penalty for education. I was assuming IRA as your post stated. | |
MRBARRYTAX (talk|edits) said: | 17 February 2008 |
| THANKS FOR ALL THE HELP. CLIENT INFORMED ME THAT THIS MONEY CAME FROM ROLLOVER ACCT, which is so designated on the form 1099, AND NEXT TO DISTRIBUTION CODE --2-- THE BOX IRA/SEP/SIMPLE is "x"ed. SHE ONLY HAS TOTAL OF $50,000 IN IRA, SO NO ACTURIAL COMPUTATION. | |
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