Additional tax on IRA!

Did you take $3,000 out of your IRA and you are less than

59-1/2 years old?

-- Don EA in Upstate NY

My crystal ball is in the shop for repairs, so I'll have to guess. Do you have a $3,000 taxable distribution on line 15 or 16 of the 1040 and were you under 59 1/2 when you took the money? If the answer to both is yes, the $300 on line

60 is the 10% premature distribution tax.

-- Phil Marti Clarksburg, MD

I'm guessing that you took $3,000 out of your traditional IRA last year and you are under the age of 59-1/2. There is a 10% penalty for money taken out of retirement accounts before age 59-1/2 unless you meet one of the exceptions on Form 5329. IRAs are retirement accounts, and if you use the money for something other than retirement, the government penalizes you unless you have an acceptable reason. If this was a Roth IRA, then you might have answered one of the TurboTax questions incorrectly, as you can take out contributions from a Roth any time without having to pay taxes or penalties.

did you take out money ($3,000?) from an IRA or other retirement plan? ___________________________________

-----> real address on hobokeni or hobokenx

Most likely it's the 10% excise (penalty) tax on early withdrawals from an IRA. Did Turbotax also generate a Form 5329? If so, inspecting that form will provide more information.

It is all about you being under 59 1/2 and withdrawing retirement money, IRA or company retirement, etc. There is a 10% penalty for withdrawing it before you are of retirement age. Your withdrawal was $3000.00. Am I correct? Missy Doyle

Line 60 is for reporting tax penalties due on distributions from various sorts of IRAs or for excessive contributions to IRAs. One example is the 10% tax penalty for taking money out of an IRA before you reach 59 1/2. Turbotax should have generated a Form 5329 detailing the situation.

An all-too-common premature distribution with no mitigating factors will not generate a 5329, just the penalty. See the instrucitons for line 60 of the 1040.

-- Phil Marti Clarksburg, MD

I wonder if I put the figures in the wrong line.

I did not take any money out from an IRA, but rather I was considering depositing $5K. When I saw the tax figure I decided not to. Since I have a 401K plan, it really does not reduce my taxes for the current year. It just saves me from paying tazes on the interest (I think). Deguza.

Safe bet.

Now it sounds like you told it you made a $5,000 excess IRA contribution resulting in a 6% ($300) penalty. Did you run TT's "alerts" or whatever they call their diagnostic routine after the return is done but before you file? That should identify a problem with IRA contributions and give you a chance to fix it. If that doesn't work, try one of the following:

1. Go to lines 32 and 60 of the 1040 and right-click. That should take you to the worksheets feeding those lines.
2. Go into the interview mode and go to the section where it asks about IRA contributions and fix your error(s).

-- Phil Marti Clarksburg, MD

I followed the Turbotax trail and looked up the help screens. It turns out that it is for excessive contributions. Since I have a 401K plan, anything I contributed to the IRA was considered excessive. What a shame. We complain about Americans not saving enough, yet we get taxed when we want to save more... Deguza

It sounds to me like you're in over your head. One is allowed to make IRA contributions as long as there's taxable compensation left in Box 1 of the W-2. The presence of a

401(k) does affect the deductibility of traditional IRA contributions, but not the ability to make them. Keep looking or haul this mess off to a professional. It will cost you less than a $300 penalty you simply do not need to pay. Even if you've done something that would result in the penalty, you still have time to fix it and avoid the penalty.

-- Phil Marti Clarksburg, MD

You're still misreading things. Being in a

401(k) only affects whether or not a traditional IRA contribution is *deductible*. It *does not* affects your ability to make a traditional IRA contribution, so being in a 401(k) *cannot* cause your IRA contribution to be "excessive".

-- Rich Carreiro snipped-for-privacy@animato.arlington.ma.us

Well, not really. You are being taxed more only because you want to put this additional savings into a tax deferred plan. There is nothing that prevents you from saving as much money as you want outside of a tax deferred plan. Or you could buy one of a number of tax deferred investment options, such as EE or I Bonds.

-- Vic Roberts Replace xxx with vdr in e-mail address.