IRA WITHDRAWALS

I filed an extension and am working on my 2009 tax return. Last year, I cashed in my IRA to pay off some doctor bills. I lost my job and couldn’t pay but I did have my IRA so I used that to pay. I used the whole thing. Now going through my papers I found that I got a 1099 that says that it is all taxable. Please help because I thought it was not taxed if you use it to pay the hospital. Thank you.

Al

Bad news Al. Amounts you withdraw from a traditional IRA are generally taxable in the year you withdraw them, no matter what the reason for the withdrawal.

There is more bad news. If you’re under age 59 1/2, you may be subject to a 10% additional tax plus possibly a state surtax. There are a few exceptions to the additional tax rule. This is what may have confused you. You can avoid the 10% additional tax (not the regular tax) if your IRA withdrawals are equal to or less than your deductible medical expenses. This means if you had medical expenses greater than 7.5% of your adjusted gross income (the number at the bottom of page one of your return).

But there’s no exception for medical expenses that would allow you to escape taxation of your entire IRA. Sorry.

Larry Kopsa CPA