Document Type

Article

Publication Date

12-2007

Publication Source

Journal of Financial Planning

Volume

20

Issue

12

Inclusive pages

82-84,86-90

Publisher

Financial Planning Association

ISBN/ISSN

10403981

Peer Reviewed

yes

Abstract

nternal Revenue Code Section 72(t)(1) assesses an additional 10% tax on early withdrawals from qualified retirement plans. But Section 72(t)(2) provides several exceptions to this penalty tax. Following an overview of the statutory exceptions, this article provides an analysis of recent judicial decisions involving three highly litigated Section 72(t) exemptions. Taxpayers are misunderstanding the IRC meanings of higher education expenses, qualified students, first-time homebuyers, and qualified domestic relation orders. The article also presents tax planning techniques that can assist clients in avoiding this penalty tax. These strategies include making distributions from the appropriate qualified retirement plan and ensuring that the court issues a qualified domestic relation order if divorce settlement funds are to be paid from a qualified retirement plan that is not an IRA.

Disciplines

Accounting | Taxation

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