Steven is 27 years old and has a total AGI of $110,000 in 2015. He contracts pne

Question

Steven is 27 years old and has a total AGI of $110,000 in 2015. He contracts pneumonia in 2015 and incurs a medical bill that totals $7,500. He withdraws $7,500 from his traditional IRA to pay the bill. Which of the following is true?

a He is subject to penalties on the IRA withdrawal because a person may not take a withdrawal from a traditional IRA until they are 59 ½ years old no matter what.

b. He is subject to penalties on the IRA withdrawal because the withdrawal did not cover a portion of medical bills that exceeded 10 percent of his AGI.

c. He is not subject to penalties on the IRA withdrawal because he was disabled by pneumonia for 2 weeks.

d. none

Explanation / Answer

Answer a is correct.

The general rule is that if you are withdrawing money from IRA after age of 591/2 ,you don't have to worry about any penalties , you just need to pay taxes. But if you withraw money after age of 59 1/2 the IRA charge you with a10% penalty . So ideally you need to wait until you reach him to that stage. But to this penalties there are some exception to it and one of the ex edition is as below :

1. You have unreimbused medical expenses that are more than 7.5% of adjusted gross income.

So by applying the above rule his unreimbused medical expense should be more than AGI $ 110,000 × 7.5% = $ 8250

But here his medical expenses are $ 7500 which is less than the $ 8250 hence he is liable to penalties @ 10%

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.