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Subject to 10% Distribution tax?


Joey B

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My client has a distribution from a Qualified pension plan of $21,000 which was used as a down payment on his very first home. Since this came from a Qualified plan, can up to $10,000 be subtracted from the distribution and balance charged 10% tax? This is not an IRA, where I believe there is this allowance but does it also include 'qualified plans'? The tax programs are allowing the deduction.

Thanks for thoughts

Joey B

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My client has a distribution from a Qualified pension plan of $21,000 which was used as a down payment on his very first home. Since this came from a Qualified plan, can up to $10,000 be subtracted from the distribution and balance charged 10% tax? This is not an IRA, where I believe there is this allowance but does it also include 'qualified plans'? The tax programs are allowing the deduction.

Thanks for thoughts

Joey B

I would suggest looking at code section 72 to strart with.

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If there is a change to the law, please let me know, because I have a client in the same mess. Took the distribution from the 401K. 10% penalty applies.

Please correct me if I am wrong because I still have the return at my desk waiting for other final items from the client.

How is "the tax programs are allowing the deduction"?

Are you entering a code in the penalty worksheet for IRA withdrawal for first time homebuyer?

Tom

Lodi, CA

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>>How is "the tax programs are allowing the deduction"?<<

I tried it in Lacerte, and erased the penalty slick as can be! Just goes to show we can't let our machines take over the world because they don't think things through right. It's up to us, not some nice guy in Caribou, to do a quality job. Or, as we used to say in the good olde days of DOS, garbage in, garbage out.

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Just tried the program also. The only way for ATX to eliminate the 10% penalty in this case would be for the preparer to INCORRECTLY enter the code "9" on form 5329...which as others have noted will not apply in this case as the distribution is NOT from an IRA. Bummer......but that's why we all have returns to prepare.

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Nope, 401(k) does not qualify for first time homebuyers exemption, only IRAs.

I just tried it on ATX. sure does let it go through, without even an error message. I wonder if TurboTax will let you do it? Somehow I don't think it will...

I had a friend try it on the 'pro series' program and it did allow the deduction!

I am glad we need to think once in a while

Joe B

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>>How is "the tax programs are allowing the deduction"?<<

I tried it in Lacerte, and erased the penalty slick as can be! Just goes to show we can't let our machines take over the world because they don't think things through right. It's up to us, not some nice guy in Caribou, to do a quality job. Or, as we used to say in the good olde days of DOS, garbage in, garbage out.

I don't know what you are talking about jainen, when the program doesn't want to do what I think it should do to erase penalties, lower taxes, or increase credits; I just post on this board, find somebody to agree with me, and overwrite the entry. It works really well. lbb

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"Sure. I can see how that would work for you. My problem is that I can almost never find anyone to agree with me!"

It's truly the unfairness of life; in addition to good looks, an acerbic sense of humor, and vast intelligence, some are graced with charm.

PS Agreement happens ONLY when the subject is elimination of penalty, reduction of tax, or increase in credits. lbb

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