Christian

Well , of course, I did all of the above and then came up against the ATX statement advising to the pay the penalty which threw me off. I merely ran a line through that part.

If you feel that you missed the deadline due to a reasonable cause, then you may ask the IRS to waive the 50% excise tax. The request for a waiver may be included in a letter of explanation, which you attach to your tax return (Form 1040) along with your Form 5329. When requesting a waiver, do not pay the excess accumulation penalty up front. Instead, follow the instructions for requesting a waiver in the Instructions for Form 5329. If the IRS does not honor your waiver request, then you will be notified. This looks to be my answer and I will simply ignore the ATX instruction.

I have prepared my client's return and am going to mail it to him next week. ATX has a form to add to the Form 5329 detailing the client's reason for not taking the distribution in 2021. After completing it it shows no tax due BUT it states the penalty is to be paid with the filed return. Which is correct. He has provided a letter which is going to be attached to his return explaining his reason for not taking the distribution. I was under the distinct understanding the penalty was NOT to be sent with his return. He has now taken his 2021 and 2022 distributions and so has cured the delinquency.

I note some questions in the press about the IRS question about digital currencies which is now on the Form 1040. I have a client who purchased some Bitcoin in 2021 and is simply holding it as an investment. I answered no to the question as it's phrasing seemed odd and have since read pros and cons as to the correct response. If memory serves it asked if you received ( as in a gift or being paid in Bitcoin) and since he purchased it I thought no would be correct. What is your opinion? I see they are going to rephrase it again for the 2023 filing season.

Well I now see what his problem is along with the five year rule. Like others he sorta wondered into this arrangement not fully checking it out completely. He now wants to modify his distribution method due to stock market losses transferring a part of the account into some form of annuity arrangement. It's all very interesting so I sent him a copy of the report I had and he and his broker can sort this out. Personally I suspect if they are not really careful they may run afoul of the regs. He began distributions last year so whatever rules apply were in effect then.

A client retired last year having placed his company plan into a personal IRA. He put a 72-T plan in place until reaching age 591/2 in some three years. He has the expectation that on reaching 591/2 he can increase his distribution. My reading of the info I received from a member of our board from the Slott Report commits him to a payout for five years in the amount he set up irrespective of the fact he turns 591/2 in three years. The question is can he raise his distribution once reaching 591/2 or is he stuck with his fixed distribution until five years have elapsed ?

This is wife number three. They both have wages of about $75,000 each and contribute big chunks of their incomes to 401-K plans. There is no joint income. They likely thought this would offset any additional tax but he also has a great income stream from dividend income which he recently got from his deceased mother along with money from a rental. It's a simple case of no tax planning and might prove a lesson for him. His Bitcoin remember that of the $100,000 dollar value? It is now at about $21,000 a coin not $100,000. He is not exactly doing an Irish jig over that either.

The husband here decided to make a huge bet on Bitcoin "My source advises me it will hit $100,000 by the end of the year". With such a huge amount of money dropped into the couple's income stream he failed to remember that our system is progressive and he went into a higher bracket. He never bothered to call me to discuss what might happen by taking this action but in truth people rarely do so now he is going to pay a not inconsiderable tax bill.

I have had time to review the info provided. I see precisely what you are saying. He is of the impression he can change his distributive amount at 59 1/2 which clearly is not the case as he will need to wait the full five years. He set this arrangement up with his selected fiduciary and I do not know which method they picked for his distributions. Worse when his first 1099-R form came in January the code in box 7 was 1. I called his broker to request it be changed to 2 and to my astonishment was told they did not provide tax advice. I attached the necessary form indicating the correct code. I recently received a call from the broker indicating his client wanted to make a change which he felt sure was ok but wanted to discuss it with me. I am going to photocopy the info from the Slott Report and provide it to my client and he and his broker can decide what is to be done. I thank both of you for clarification on this matter. Every other client I have served in the past who used this method for early IRA withdrawals have come to me with properly coded 1099-R forms but there always comes someone with his own set of ideas.

He took his first withdrawal last year. He was retired for 11 months. Are you saying he can modify (increase) his annual distribution once and not incur any penalty ? Of course, I am assuming he will have to use this increased amount each year having made this change. Knowing him he likely will want another change next year ! I am astonished the fiduciary on this account does not handle this type of detail.

Well Margaret it did not work. Although his tax dropped hers increased by a greater amount and their federal tax was more under MFS. He will just have to pony up. Interestingly the wife's W-2 income when taxed as a single person or as married filing separate shows a significant federal under withholding and is her only income in their situation. They have a farm loss which evidently mitigates this I guess.

A client retired early at age 55 and transferred his retirement account formerly provided and held by his employer to a personal IRA. Since he is not yet 59 1/2 he established a uniform withdrawal plan which is in place until he reaches 59 1/2 which exempts him from paying the 10% early withdrawal penalty. He now wants to take out more than he set up to withdraw annually. Will he pay a penalty on the amount above what he established to withdraw annually or the entire amount taken ? Will this negate his agreement going forward or are there exemptions to any penalty under a uniform withdrawal arrangement.

No social security as both are too young. After I complete the two separate returns I will do my DUE DILIGENCE that moniker the IRS so dearly loves and simply see if the combined tax due on both returns is less than the amount due on the already completed married filing joint return which I had ready to return to the couple. Hubby is delighted that wifey will have to pay her share as he usually gets stuck with any balance due. What was that old song "She got the gold mine I got the shaft".

Thanks Margaret this will greatly facilitate my work. Much appreciated and lucky me the spouse has only her W-2 the rest is his.

I rarely check the MFS return status primarily because I hardly if ever found it benefited a couple. One of my clients thought that because he reinvested the proceeds of amounts he withdrew from some qualified accounts (IRA & 401-K) into Bitcoins he owed no tax on them. He did not bother to call me to ascertain if his understanding was correct and plumped down some $90,000 plus into his Bitcoin account. The fiduciaries of the accounts evidently got him to withhold some tax but he fell short of the mark. I ran the MFS ATX checker and it does indeed show a tax saving. My question is do I need to reconstruct two separate returns from scratch or is there a toggle in ATX that will transpose the respective information onto two separate returns ?

I have a client who had this issue twice once when her first husband died and some five years later when she remarried. She had to get the state Senators office to finally get it resolved.

I have had time to look into it and according to what I read he will need to take his 2021 distribution in 2022 BUT it will be included on his 2021 return so he pays the regular tax due and gets hit with the penalty as well. If he requests a waiver of the penalty he simply does not pay it but includes a letter explaining he forgot due to poor health and waits to see if they will grant it. If it were my choice I would ask for the waiver but the fact is his doctor will not provide any kind of letter attesting to his poor health. His broker was bought out last year and I suspect the new outfit failed to to advise him of the MRD.

A client failed to take his RMD from an IRA account for 2021. He is going to pay the 50% penalty with his 2021 return which is on extension. Since he will NOT be requesting a waiver of the penalty doesn't he simply proceed to taking his 2022 distribution for this year. This too is a first for yours truly as all my other folks take theirs on time every year. He has been receiving distributions from this account for a number of years and (duh) advises he never remembers getting a 1099-R form for years ! As a result I did not include that income in two previous years returns. Despite my having requested any info on any IRA accounts he had.

This was an unusual year. Rarely do I file any extensions and what few by efile. Things being what they are I may need to make some adjustments.

As it turned out the girl filed her return and claimed herself which meant the couple had to drop her as a dependent. I did advise her mother the credit was available to the daughter.

Normally I efile them but this year made an exception. Fortunately for me most if not all of them get refunded.

A client and his third wife have a 19 year old daughter who they claim as a dependent who lives in their home. As she graduated from high school last year I called to inquire if he did not have tuition expenses which they might be able to obtain a credit for. He did not know and advised that the daughter wanted to file her own return for 2021. This being so she may have claimed the education credit for herself. If so is that legal? I have not reviewed the rules of late but a dependent cannot claim an education credit for expenses paid by her parent right ? The daughter is by a previous marriage so the step father who is my client actually did not know what her expenses were.

In speaking with him yesterday it was decided he would instruct his broker to distribute his 2021 distribution immediately and later his 2022. He was a little confused having gotten an IRS message in regard to his extension thinking this was from his broker. He will get a letter or note from his VA doctor which along with a brief letter from him will be attached to his Form 5329 on his 2021 return. This will likely get him the waiver. Oddly I mailed a number of extensions for clients all in a single envelope PRIOR to the April deadline only to have some getting rejection notices advising the extension was received too late. Thanks for those who advised me.

For clarification. I take it BOTH the distribution for 2021 and 2022 are indicated as income in 2022 on a Form 1099-R ? Since his filing for 2021 will show the 2021 distribution for purposes of the penalty waiver it occurs to me this could pose a problem. If they issue a form which shows both the 2021 and 2022 distribution I can see where the IRS will understand what occurred. I am assuming he needs to attach his letter of explanation to the Form 5329 giving his reason for a waiver and stating he will pay tax on BOTH distributions in his 2022 income tax. He is a retired veteran who has some cognitive issues. I would think a simple note from a VA doctor would cover the waiver issue.

I will surely do that. What you advise is taking the full distribution before October 15th. I have not had time to read the 5329 but assume it is included with the explanation. He has received a letter from his broker and seems confused about what they can do about this. It looks to me that all they need to do is make the full distribution and he must handle the rest.