Category Archives: South Florida CPA

Avoiding the 10% Early Withdrawal Penalty – What every Traditional IRA owner should know

  1. Medical Insurance Premiums if Unemployed. If you have been receiving federal or state unemployment for 12 or more consecutive weeks, you may pay for medical insurance premiums from your Traditional IRA without paying the 10% early withdrawal penalty. The premiums may cover yourself, your spouse, and your dependents’ medical insurance premium.
  2. Qualified Higher Education Expenses. You may pay for tuition, books, fees, supplies, and equipment at a qualified post-secondary institution for yourself, your spouse, your child or grandchild from your Traditional IRA without paying the 10% penalty.
  3. Medical Expenses. If you need to withdraw from your IRA to fund medical expenses in excess of 7.5% of your Adjusted Gross Income you may do so penalty-free.
  4. First-Time Homebuyer Expenses. IRA distributions of up to $10,000 to help pay for the qualified acquisition costs of a first-time home avoid the early withdrawal penalty too. This is a lifetime limit per individual. A first-time homebuyer is defined by the IRS as not having an ownership interest in a principal residence for two years prior to your new home acquisition date. Even better, to qualify the home can be for you, your spouse, your child, your grandchild, your parent or even other ancestors.
  5. Conversions of Traditional IRAs to Roth IRAs. Want to convert your Traditional IRA into a Roth IRA to avoid paying taxes on future account earnings? No problem, this too is considered a qualified event to avoid the 10% penalty.
  6. You’re the Beneficiary. If you are the beneficiary of someone else’s IRA and they die, there is usually an opportunity to withdraw funds without the penalty. Plenty of caution is required in this case, because if treated incorrectly the penalty might apply.
  7. Qualified Reservist. If you were called to active duty after 9/11/2001 for more than 179 days, amounts withdrawn from your IRA during your active duty can also avoid the 10% penalty.

Annuity Distributions. There is also a way to avoid the 10% early withdrawal penalty if the distributions “are part of a series of substantially equal payments over your life (or your life expectancy)”. This option is complicated and must use an IRS-approved distribution method to qualify.

Some Final Thoughts.

  • Remember, the above ideas help you avoid an early withdrawal penalty for funds taken out of your Traditional IRA prior to reaching the age of 59 ½. After this age, there is no early-withdrawal penalty. The penalty is also waived if you become permanently or totally disabled or use the funds to pay an IRS tax levy.
  • While the above events allow you to avoid the 10% early withdrawal penalty you will still need to pay the income tax due on the withdrawn funds.
  • While generally the same, the 10% early withdrawal penalty rules are slightly different for defined contribution plans like 401(k)s and other types of IRAs.
  • Before taking any action, call to have your situation reviewed. It is almost always better to keep funding your Traditional IRA until you retire.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

South Florida CPA Firm


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Filed under Retirement Planning, South Florida CPA

FBAR TDF90-22.1 Deadline

May is over and June represents another filing deadline for persons who have foreign bank
accounts and investments

Some things to remember to prepare Form TD F 90-22.1, Report of Foreign Bank and
Financial Accounts, commonly referred to as FBAR, for calendar year 2011:

1. Make sure to use the most current version of the form (dated January 2012) to ensure the
filing is not rejected by FinCEN. The government does not process expired versions of this

2. Calendar 2011 FBARs must be received by Treasury on or before the June 30 due date in
order to be considered timely filed. Therefore, one should plan accordingly and file the
FBAR in sufficient time in advance of the due date. No extension of time is permitted. The
familiar mailbox rule that applies for income tax returns is not applicable with respect to

3. For those who are able, consider the use of the BSA E-Filing system to electronically
submit the calendar 2011 FBAR. Electronic filing of FBAR is only currently available by the
actual FBAR filer, and is not yet available for practitioners to file on behalf of their clients for
calendar 2011 FBARs. All should keep in mind that FinCEN is moving forward with plans
to require mandatory electronic filing for all FBARs in the future.

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Filed under CPA South Florida, Deerfield Beach CPA, South Florida CPA, Tax Planning

Common Payroll Mistakes

1. Classification of Employees as Independent Contractors
2. Failure to Subject Vendor Payments to Backup Withholding
3. Failure to Issue Form 1099s
4. Not Including the Fair Market Value of Gift Cards,
Prizes and Awards in Employees’ Income
5. Failing to Timely Deposit Withheld Taxes
6. Incorrectly Handling Expense Reimbursements
7. Not Including the Appropriate Value of Taxable Fringe Benefits
in Employees’ Income


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Filed under CPA South Florida, Deerfield Beach CPA, South Florida CPA