Today TaxMama® hears from Ed in the TaxQuips Forum, who is concerned “I was a beneficiary of my father’s IRA in 2009, after he died. I took out the entire amount at that time and paid the taxes due. Everything I read on the web indicates that I do not owe an early distribution penalty. However my enrolled agent seems to think I do. Can someone please advise if there are circumstances of which I am unaware?”
Do you mean that you took out all the money at the time you inherited it, several years ago – perhaps in 2009? And you paid taxes at the time, but no early withdrawal penalties?
That would be correct. At the time of the draw, the distribution code in box 7 of your Form 1099-R would have been a 4. That means the distribution was taken as a result of a death. Those distributions are not subject to early withdrawal penalties.
So you are correct.
Please read what the IRS says about inherited IRAs. (Or you may already have read it.)
Is your EA saying that you still owe a penalty for 2009? Please ask him to explain why. It’s not clear to me.
And remember, you can find answers to all kinds of questions about IRAs and other tax and business issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed version of TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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3 thoughts on “IRA Penalty”
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Did this cause the audit?
Look at the 1099-R you received after you drew the money?
Does it show a code 4 in box 7?
If it does not, please contact the IRA administrator of your father’s account.
If you drew out the money from your father’s IRA (without first moving it to your own IRA), it doesn’t matter if you are 10 years old. There is no early withdrawal penalty.
When did your EA respond saying that you DID owe the penalty?
You may still be able to fix this.
Hello Tax Mama,
Great site. Thank You so much for the answer to my question. I did take all the money out and paid taxes on it, but I was only 58 at the time. . . . My tax guy says I have to pay the 10% late penalty fee because I was not 59.5.
I have done a lot of reading on the matter and thought he was wrong. I guess you have confirmed this. Right? I think I will forward your site to him and although he is an enrolled agent, maybe he would be interested in a refresher course. As the audit triggered this event, he resubmitted stating I owe the penalty. The IRS has added interest and more penalties. He now suggests I appeal to the IRS if I think he was wrong but still insists he was correct. So if you cannot offer any further advice, I understand. Was my age the determining factor? I will read the links you have provided in the kind response and again want to thank you very much! 🙂