Exceptions to 10% Early Withdrawal from IRA’s and 401(k)’s

Many people have been dipping in to their retirement savings in order to make ends meet. What many people don’t realize is that there is a 10% penalty on most early withdrawals from IRA’s and qualified accounts such as 401(k)’s if they are made before the age of 59 1/2. This 10% penalty is in addition to the income tax that must be paid on the withdrawal amount at the taxpayer’s individual tax rate.

There are some exceptions to this 10% penalty that many people may not be aware of. If the money is used for any of the reasons below you could avoid the 10% penalty. Some of these exceptions only apply to IRA’s and some only apply to qualified accounts, so be sure to consult with your tax advisor regarding your specific situation. You will also need to notify your tax preparer that you used the money for one of the reasons listed below as that information will not be reported on the 1099-R tax form you will receive in the year of distribution.

Exceptions:
•Distribution made to an employee who has attained age 55 and separated from service

•Distribution is part of a scheduled series of substantially equal periodic payments made over the life expectancy of the participant or joint lives of participant and his beneficiary

•Distribution made due to total and permanent disability

•Distribution made due to death of the employee or account owner

•Distribution to the extent the individual’s unreimbursed medical expenses exceed 7.5% of his AGI

•Distribution made to an alternate payee pursuant to a qualified domestic relations order (QDRO)

•Distribution to pay for health insurance premiums for certain unemployed individuals

•Distribution to the extent of the qualified higher education expenses for the year of the taxpayer, spouse, child or grandchild

•Distribution for first-time home purchases (no home ownership in prior two years). This distribution is limited to $10,000 (lifetime)

•Distribution due to an IRS levy on the qualified plan or IRA. This exception will not apply if funds are withdrawn to avoid a levy or to satisfy a levy on other property

•Distribution to reservists while serving on active duty for at least 180 days

Potential Lease Accounting Changes on the Horizon

Authored By: Dustin Wood, CPA. Dustin has been with the firm 7 years and is the audit manager here at Cook Martin Poulson, PC. He specializes in financial statement services.

Significant changes to accounting standards for lease accounting are on the horizon as part of a convergence project between accounting standards setting bodies in the United States and internationally. Potential changes to lessee accounting would do away with current accounting requirements, which provide a bright line test to determine whether a lease is an operating lease or a capital lease for the lessee. Operating lease payments are currently expensed as rent and lease payments while capital leases require the recording of an asset and a liability, as if the asset were being purchased. Based on current discussions, changes to lease accounting would require recording assets and accompanying liabilities for all leases, and would require adjusting lease accounting for leases already in place. The proposed changes are currently still in the discussion stage, but if finalized, would require analysis by companies and their accountants to determine the effects of the changes and what adjustments may be necessary.