Tax/IRA hardship question... OT

[Skipper]

Hi all,

During 2008, I had a 401k at my previous employer that I was forced to convert to a IRA when the employer suddenly shut down.

In 2009 I had to take substantial withdrawals from the IRA to offset the reduced income (about $90k, year over year) I was/am receiving from my "new" job (same field). In essence, I had to withdraw over 20k in in 2009, order to not default on my mortgage payments, while waiting for the MHA modification process (not to mention the amount spent using after-tax $$ for my portion of the company medical plan premiums).

My question is this; does anyone have an "opinion" as to if the amount money I took out (early distribution) of my IRA, in order to make mortgage and medical payments, qualify as "Hardship" withdrawals and therefore potentially not subject to the 10% penalty?

I know this is "off topic", but I also know there are some very intelligent people here, and I would appreciate any insight you all may have.

Regards,

Skipper

p.s. making trial payment number 2 (due December 1st) today!

[Roberto77]

It appears that your hardships are not listed as any of the specific IRS reasons for not applying the 10% penalty. Publications Online Pub 590, pg #53

[yomann]

I have a bit of familiarity with IRA rules, and my "opinion" is neither one of those qualify as a hardship withdrawal.
You may want to check irs.gov and speak to an accountant.

The good news is your tax rate will be very low, due to lack of income and claiming mortgage interest deductions - it's possible the only tax you may pay is the 10% early withdrawal penalty.

If you still have a need to tap into IRA funds going forward, consider "annuitizing" your IRA and taking "substantially equal payments over lifetime". This is explained under IRS Ruling 72(t).
You will still have to report these withdrawals as income, but there is no penalty.

[Skipper]

Originally Posted by yomann

I have a bit of familiarity with IRA rules, and my "opinion" is neither one of those qualify as a hardship withdrawal.
You may want to check irs.gov and speak to an accountant.

The good news is your tax rate will be very low, due to lack of income and claiming mortgage interest deductions - it's possible the only tax you may pay is the 10% early withdrawal penalty.

If you still have a need to tap into IRA funds going forward, consider "annuitizing" your IRA and taking "substantially equal payments over lifetime". This is explained under IRS Ruling 72(t).
You will still have to report these withdrawals as income, but there is no penalty.

Thanks,

I saw that for the IRA. I would like to possibly try to make the case that my "IRA" was originally a 401k, which was forced to an IRA when the company I was working for shut down and I became unemployed for a time. We will see what the accountant thinks... Keeping my fingers crossed!

It is my understanding that had it been a 401k, there is a hardship provision for avoiding foreclosure, which is exactly what the money has been used for.

Regards,

Skipper

[yomann]

It is my understanding for the 401-K rules to apply, the funds have to be disbursed by the 401-K plan administrator.
Since you converted the funds to an IRA, and withdrew from the IRA, then IRA rules would apply.