IRA Distribution for 1st time home byer

[Summit1]

Client is purchasing a home and will need to pull funds from an inherited IRA. They need to net $55,000 for the home down payment. This is a first time home purchase so $10,000 won't be subject to penalty but the balance will have 10% penalty. 

Client's AGI will be about $130,000. MFJ standard deduction will be used. Has anyone calculated how much you will need to increase the IRA deduction to cover the taxes and penalty and net the $55,000.00 for down payment?

[BobKamman]

Why can't you do that yourself?

Are you sure the penalty applies?  When was the IRA inherited, by whom?

[Summit1]

Wife inherited the IRA from her father (65) in 2023 by daughter (32). It appears that based on current rules she will not have to pay the 10% penalty since distributions are required. 

[abctax55]

$55k - $ 45k ./.   ( 1.0 - Fed tax rate + State tax rate) %  -   assuming the amount > $10K is taxable (See Bob's comment)

[PATAX]

That algebra class from high school always comes in handy

[Summit1]

True...for me that was a long time ago!

[abctax55]

50 plus years for me, but it still comes in handy

[IRonMaN]

It's been so long for me that I thought I learned it in a geography class.  But whether I learned it in algebra or geography I still use it quite often so I still remember it even if I did learn it in 1917.  

[abctax55]

Geography or geometry? 

I loved geometry 😉

[IRonMaN]

It has been too long for me.  I don't remember the difference between geometry or algebra or calculus, or any other math type things.  I just lump them all in as math and leave it at that ------------------ I had to clear some space in my brain to make room for all the passwords I need to remember these days.

[PATAX]

Calculus was the most difficult of the math classes, the most challenging. There was also trigonometry which I also liked.

[BobKamman · Accepted solution]

Algebra always makes me hungry for oranges.  Both words of Arabic origin, you know.  Sort of like al Qaeda, but not as threatening for most people.  

I am surprised by how many people seem to be using the 'tax planner" feature of this software, judging from the suggestions about improving it.  Wouldn't it be useful for answering questions like this?  You bought it, might as well use it.  But my suggestion to this client would probably be to withdraw just the $55K this year, then the funds needed to pay the tax on it next year.  Might keep them out of the next tax bracket.  And keeping the AGI low is often important for someone trying to avoid the 50% increase in Medicare premiums (maybe not a problem in this case).  

[ljr]

wouldn't the distribution be coded a 4 and not a 1 and therefore no 10% penalty? 

[Jim-from-Ohio]

Code 4 is for a death disbusement.. the $ 10,000 penalty exception is entered on Form 5329