Ask TaxMama.Com Tax Information With A Mother's Touch Published by Eva Rosenberg, MBA, EA Volume 6, Issue 254        April 9, 2004

Things to Do or  Know in April Child Tax Credit Error Early Withdrawal Penalty Accepting Credit Cards, Checks or Payments, Online II   Extensions of Time to File Your Tax Return New! File by Phone! Shoot Off Your Mouth Where It Counts   The Frog Prince   E-Mail  This Page To A Friend Your email: Your name: TO email:

Early Withdrawal Penalty » From: Lander, WY Dear TaxMama: My husband took $20,000 out of his 401K for a down payment on our first house. His 401K was through Lincoln Financial and they told him there was a way to avoid the early withdrawal penalty, and that was to take the money out of a 401K and transfer it into another type of account and THEN into our checking account. The financial adviser at Lincoln Financial arranged all this and then wired it into our checking acct. That was a year ago. Now we're getting our taxes done and finding out that Lincoln Financial transferred the funds from the 401K into a Lincoln TSA and then into our checking acct. But our tax preparer says it has to be an IRA. We called Lincoln Financial and the guy says "Oh, I'm sorry, I didn't realize". And that was it. To me it seems like he SHOULD have realized, it's his job isn't it? We're having to pay $2100 in early withdrawal fee and apparently we would have gotten out of $1000 of that fee had Lincoln Financial done their job. I think they should be responsible. Am I wrong? Thank you, Kristy Hi Kristy, You are perfectly right. And I've had that kind of thing happen to my clients, too. In the future, before you do anything like this, talk to your tax pro. S/he can provide specific instructions to your financial institution. For now, though, do this: Put your tax return on extension. Do NOT file it yet. Write a letter to the president of Lincoln Financial. Call and ask the manager at the branch for the name and address. They must give it to you. Send a copy to the manager. Send the letter certified, return receipt requested. Outline the problem. Give them 30 days to fix it. These are the choices: Correct the paperwork on the type of account it went into. THEY told you it needed to go into a temporary account. You counted on them to put it into the right kind of account - an IRA. Clearly it was an internal error - correct it. If that isn't possible or legal, pay the extra penalties that resulted from their carelessness. If they don't respond, you have no choice but to file and pay the tax. However, you have two options. Take them to small claims court to get a refund of the early withdrawal penalty you should not have paid. Contact your local television station's consumer reporters and have them follow up with Lincoln. You'd be surprised at how much financial institutions want to avoid publicity like that. Just get your documentation in order before you take any actions. If you do, you'll get your money back. For future reference, any time you engage in an unusual financial transaction, have your Tax Pro review all the paperwork before finalizing the transactions. I do this for clients all the time and catch errors that save them thousands of dollars - in taxes, fees, or calculation errors. They ARE here year-round to help you. Best wishes, Eva Rosenberg Your TaxMama

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