URGENT: When do I pay penalty for IRA Early Withdrawal?

Discussion in 'Tax' started by Jay, Jan 14, 2006.

  1. Jay

    Jay Guest

    I made an early withdrawal from my sep-ira account and my
    bank/institution has not withheld any 10% penalty. My only
    income in 2005 is from salary and some minor investment
    income.

    Q1. When and how do I pay the 10% penalty? Is it when I file
    my returns in April?

    Q2. I made the withdrawal a month ago. Can I still put it
    back in my same sep-ira account and have no penalty or tax
    to pay on it?

    Thanks.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Jay, Jan 14, 2006
    #1
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  2. Jay

    Herb Smith Guest

    Jay wrote:

    > I made an early withdrawal from my sep-ira account and my
    > bank/institution has not withheld any 10% penalty. My only
    > income in 2005 is from salary and some minor investment
    > income.


    The trustee/custodian is not required to withhold the 10%
    penalty.

    > Q1. When and how do I pay the 10% penalty? Is it when I file
    > my returns in April?


    Unless you meet one of the exceptions, you pay the penalty
    with your tax return. Also, the penalty tax is due even if
    you otherwise have no tax liability.

    > Q2. I made the withdrawal a month ago. Can I still put it
    > back in my same sep-ira account and have no penalty or tax
    > to pay on it?


    If you return the money within 60 days from when you
    withdrew it, its as if it never happened.

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Herb Smith, Jan 15, 2006
    #2
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  3. Jay

    Missy Guest

    1. Yes
    2. Yes, if reinvested by 60 days from withdrawal

    Missy Doyle

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Missy, Jan 15, 2006
    #3
  4. Is there an audit trail to this? I mean if I withdraw from
    bank A IRA and deposit to bank B IRA 59 days later, do the
    banks file paperwork reflecting this? To say its as if it
    didn't happen implies that the IRS is either notified by
    both banks or that the reporting is voluntary on part of the
    taxpayer. Which is it?

    "Treason doth never prosper: what's the reason?
    For if it prosper, none dare call it treason."

    "Follow The Money" ;-P

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    **THE-RFI-EMI-GUY**, Jan 15, 2006
    #4
  5. Jay

    Phil Marti Guest

    "**THE-RFI-EMI-GUY**" <> wrote:

    > Is there an audit trail to this? I mean if I withdraw from
    > bank A IRA and deposit to bank B IRA 59 days later, do the
    > banks file paperwork reflecting this?


    They should.

    > To say its as if it
    > didn't happen implies that the IRS is either notified by
    > both banks or that the reporting is voluntary on part of the
    > taxpayer. Which is it?


    It's two mints in one. Our system is "voluntary," which
    means that the taxpayer accurately reports his income and
    computes his tax without the tax collector coming to his
    door to do it for him.

    Charitably speaking, some people forget to report
    everything, which is why there's information reporting by
    third parties. It's the government's helping you do what
    you meant to do in the beginning.

    --
    Phil Marti
    Clarksburg, MD

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Phil Marti, Jan 16, 2006
    #5
  6. Jay

    Bill Guest

    asked:

    > Is there an audit trail to this? I mean if I
    > withdraw from bank A IRA and deposit to bank
    > B IRA 59 days later, do the banks file
    > paperwork reflecting this? To say its as if it
    > didn't happen implies that the IRS is either
    > notified by both banks or that the reporting is
    > voluntary on part of the taxpayer. Which is it?


    Yes, there's an audit trail. And I speak from personal
    experience. Bank A wrote a check to me for X dollars. The
    same day, I took that check to Bank B, and deposited all but
    $5,000, as a partial rollover. I reported the full amount
    on line 15a, and the $5K on 15b (not sure those were the
    same line #s, as this was more than 10 years ago), so I had
    done everything right. I was over 59 and taking a normal
    distribution.

    Unfortunately, Bank A reported the distribution, but Bank B
    made an incorrect report. So, two years later I received a
    letter audit from IRS, asking why I didn't report my X
    dollar distribution on my return for the year in question.

    I immediately contacted Bank B (which happened to be my main
    bank), and they checked their records for that year and
    discovered they had made a mistake in the manner they
    reported the "rollover" -- apparently showing it as a "new
    IRA."

    The bank duly provided me a letter of explanation, which I
    attached to my response to the letter audit, along with a
    copy of my return. About a month later, I received another
    letter from the IRS, confirming acceptance of my explanation
    and saying the matter was closed.

    A clean bill of health on an IRS audit?
    -- PRICELESS !!

    Bill ;-)

    << ======================================================= >>
    << The foregoing is intended for educational purposes only >>
    << and does NOT constitute legal OR professional advice. >>
    << >>
    << The Charter and the Guidelines for submitting >>
    << messages to this newsgroup are at www.asktax.org. >>
    << Copyright (2006) - All rights reserved. >>
    << ======================================================= >>
     
    Bill, Jan 16, 2006
    #6
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