Janitor Bob Posted March 21, 2009 Report Share Posted March 21, 2009 Client withdrew 100K from her 401k to pay for a new home. I know the amount is taxable, but what about the exception on the 5329. I would like to avoid the additional 10%, but exception 09 state IRA distribution up to $10,000 for purchase of first home. This is not an IRS....it is 401k.....does this count? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 21, 2009 Report Share Posted March 21, 2009 No, it does not. Sad but that is the law. I don't know why, but Congress, in it's infinite wisdom, wrote it that way. Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 21, 2009 Author Report Share Posted March 21, 2009 No, it does not. Sad but that is the law. I don't know why, but Congress, in it's infinite wisdom, wrote it that way. This client purchased her first home in 2008 (settlement date 02/29/08), but does not get the $7,500 credit because it was settled prior to April 9...correct? Also....The 100K withdrawal from her 401k puts her income at a level that makes the credit zero anyways this high income (100K plus her regular W-2 wages of 48K) disqualify her for lifetime learning credit and tuition/fees deduction. Also according to her 1099-R....zero taxes were withheld from her 401k withdrawal. Client owes $32,560 to IRS, 4,450 to Ohio, and $1,354 to school district Client and her ex-husband (divorce final in early 2008) had their joint return prepared by a very expensive CPA last year......I know this client wanted to save money and come to me this year....but this amount due, I must admit , scares the hell out of me and I am afraid I am missing something.....I think I will give her my results, not charge her, but suggest she goes back to the expensive guy this year...and see what results he comes up with. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 21, 2009 Report Share Posted March 21, 2009 Don't give your fee away. You are right. It is not your fault the taxpayer does not qualify for tax breaks. Take your fee. Just explain everything. If she walks, oh well. If she pays, you have a great client. Tom lodi, CA Quote Link to comment Share on other sites More sharing options...
tilt Posted March 21, 2009 Report Share Posted March 21, 2009 I agree with Tom. Don't discount your fee when you have worked hard to do your best for her. She won't respect you for it. Not only that, but if she returns again and doesn't like the results again, she'll expect another discount. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted March 21, 2009 Report Share Posted March 21, 2009 JB: I learned a long time ago to not let the client's tax problem become your problem. You did the work and you should get paid. taxbilly Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 21, 2009 Author Report Share Posted March 21, 2009 JB: I learned a long time ago to not let the client's tax problem become your problem. You did the work and you should get paid. taxbilly I still think I will wait until I know she is at work and just leave her a message. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted March 21, 2009 Report Share Posted March 21, 2009 The message I would leave would be to have the client call you for an appointment so that you can go over everything step by step. If you leave a message saying she is going to owe mucho dollars you will ruin her weekend (and yours). You can then give her options on how to pay it. taxbilly Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 23, 2009 Author Report Share Posted March 23, 2009 The message I would leave would be to have the client call you for an appointment so that you can go over everything step by step. If you leave a message saying she is going to owe mucho dollars you will ruin her weekend (and yours). You can then give her options on how to pay it. taxbilly I called her today and broke the bad news....she was not a bit surprised...It was only a couple thousand more than she expected. She just asked me to include a Installment Request form so she could pay most of it now and the remainder over several months. Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted March 23, 2009 Report Share Posted March 23, 2009 And you worried for nothing ... :~) taxbilly Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 23, 2009 Author Report Share Posted March 23, 2009 And you worried for nothing ... :~) taxbilly I was honestly scared that I would cause her to have a heart attack. She is one of these clients who listens to tax advice from her mechanic and hairdresser....Obviously did not contact me. During our first brief meeting, she mentioned a bunch of credits (education, first time homebuyer, etc) that she had heard about that she thought would almost take care of her so she would only owe a small amount, if anything.....Obviously she really did not believe that or she would have been more shocked at my news. She also mentioned something that two other clients also mentioned regarding 401k withdrawals. She said..."I took a withdrawal from my 401k, but it is a "hardship" withdrawal" so not taxable" What the Heck is a "hardship" withdrawal....real or conjured up by Willie at the auto-shop? Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 23, 2009 Report Share Posted March 23, 2009 Many 401K plans are written in such a way that withdrawals are not allowed except for certain reasons. One of those reasons is a "hardship" as defined by the individual plan. In order to prevent the tax and penalty, the 401K will sometimes permit a "hardship loan" from the 401K. Many 401K accounts do not allow a loan because of the administrative cost of allowing them. If they do allow a hardship withdrawal, they are not exempt from tax and are only exempt from penalty if they meet one of the code provided exceptions. There are a lot of plan specific rules about taking withdrawals from a 401K, and employees will often confuse these rules with tax rules. Hope this helps. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
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