Re: normal IRA distribution
posted at 4/10/2012 6:17 AM EDT
In Response to normal IRA distribution
[QUOTE]Hi. My permanently disabled 62 year old husband took a lump sum normal distribution from his state 401K equivalent IRA last year so that we could pay off a line of credit. Federal and state taxes were taken out so we are okay with that but the distribution seems to mean that our itemized deductions are very much reduced because the lump sum counts as income (making this year's reportable income almost double what it usually is). We usually have over $20,000 of medical deductions because we pay 100% of our health insurance and other expenses for my husband. Are there any exemptions to counting the lump sum as income or other ways to report it in our case? We have always filed as married, filing jointly. Would it maybe help to file separately for this year? If we filed separately, could I take the itemized medical deductions since I'm the one who has a salary that pays those bills? My husband has no income. Thank you so much! I always do our taxes with no problem but this year I have these questions.
Posted by katromero[/QUOTE]
Sorry, but if you file as married, filing separately, you could itemize and, if you paid all medical expenses, you could claim them, but any expenses for jointly owned property, such as real estate taxes or mortgage interest would be split to each of you. Also, the tax rates rise twice as fast for that status, because the rate brackets are halved. There are also other limits to this filing status to be cnsidered in your computatations. Finally, if one of you chooses to itemize your deductions in claiming married, filing separately status, the other spouse MUIST also itemize their deductions.
The only other strategy that could have helped is too late to use - rolling over a part of the payout within 60 days of receipt to an IRA to avoid the current year inclusion, but even if you had received the payout late in December, this option expired in late February.
Hope this helps in preparing your returns!
Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal
Katz, Nannis + Solomon, P.C.