Question

A Trustee -to-Trustee rollover is the preferred way to transfer one retirement account to another. All of these are potential problems when taxpayers take the distribution and handle the rollover themselves EXCEPT:
1. The taxpayer must complete the entire process within 60 days or the distribution will be taxable.
2. The taxpayer is subject to a penalty if they try to do a rollover from the same IRA more than once per year.
3. The distribution is subject to 20% withholding, and the taxpayer must come up with this amount themselves or it will be taxable.
4. The taxpayer cannot claim an exemption to the 10% penalty.

Answer 1

Answer: The taxpayer cannot claim an exception to the 10% penalty

The exception from 10% penalty depends on whether retirement plan is qualified plan or IRA.

1,Death or disability of the taxpayer-When the taxpayer dies his or her retirement assets are transferred to one or more beneficiaries,these distributions are not subject to 10% penalty.A taxpayer who is permanently disabled can also take distributions without paying 10% penalty.

2.If substantial equal periodic payments are received over the expected life pf the taxpayer are not subject to 10% penalty if payments continue for 5 year or till the taxpayer reaches 59.5 years.

3.Medical Expenses-Tax payers allowable medical expenses reduce the amount of distribution subject to 10% tax

4.When IRS seizes funds, they are not subject to 10% penalty.

5.Qualified reservists withdrawals are not subject to 10% penalty.

6.Distribution to employee who retire at the age of 55 years or after are not subject to 10% penalty.

7.distribution made to a person other than account holder under qualified domestic relations order are subject to tax but not to 10% penalty.

8.Payments under federal phased retirement program are not subject to 10% penalty.

9.Distribution to individuals who received unemployment benefits from a state or federal program may be exempt from the 10% tax to the extent money was use to pay health insurance.

10.When tax payers qualified educational expenses are not exceeded they are not subject to 10% penalty.

11.Distributions made to qualified first time home buyer are not subject to 10% penalty.