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Case Study 1: Distributions, Pensions, and AnnuitiesLaura is 41 years old and received an early distribution from her 401(k) account. The volunteer determines that Laura paid for unreimbursed qualified medical expenses that meet the requirements for code 05. In this case Form 5329, Part I, would be completed. Laura would not have to pay the additional tax on this distribution. Click here for an explanation. Form 5329, Part 1, line 3 the amount subject to additional tax is line 2 subtracted from line 1. Line 4 is the additional tax that is carried over to the Other Taxes section of the return. Volunteers need to be aware of the exceptions to the additional tax on early distributions and complete Form 5329, Part I, if an exception applies. Line 2 is the amount that qualifies for the exception and where the applicable code is entered. Review the Materials Tray for a copy of the Volunteer Resource Guide, Form 5329, Part I exception codes. Code 5 exception states that qualified retirement plan distributions up to (1) the amount you paid for during the year minus (2) 10% (7.5% if TP or Spouse is 65 or older) of your unreimbursed medical expenses adjusted gross income for the year. |
