Re: Traditional IRA Distribution in 2005


JB wrote:
> Hi, I have a question(s) regarding a $5,000 distribution on a
> traditional ira and year end taxes. %10 was witheld by the financial
> company (per my requst) and my question is how to file this for 2005.
> As I understand it, the amount 'earned' should be the full amount
> $5,000, and there were no contributions to this ira for the 2005 year.

First, there is nothing "earned" about this money, it is merely a
distribution of previously untaxed (I assume) earned income. The total
amount is entered on Line 15a and Line 15b of form 1040. This should
agree with the amounts shown on your 1099R form received from the IRA
custodian.

The amount withheld is also entered on Line 61 (or 2005 equivalent for
withholding).

If you are not yet 59-1/2, you are also subject to a 10% early
withdrawal penalty ($500). Even if you otherwise do not owe income tax
(which seems likely) you will owe this surtax. The $500 is entered on
Line 57, or equivalent.


>
> Outline- I did not draw an income this year, period. Not financially
> wealthy, lived off savings, and yes, wish this could last forever.
> Therefore, the $5,000 is the only on books earned income for the year
> of 2005 that I have. I kept my money in a checking acct, so I have no
> 1099.

This last statement makes no sense, as an IRA account always has a
custodian. The custodian WILL issue a 1099R for all distributions from
the account.
You are not the custodian of your own IRA.


I have no other investments of any kind. This stated $5,000
> amount is also below minimum amount to pay taxes (I think) but for
> this situation I'm guessing things won't work out this way for what
> this is, but have no idea.

Unless you are under age 59-1/2, you probably wont owe any tax.

>
> After searching the ng for 'ira,' I came across the 8606 form and I'm
> looking at that and it's instructions now. This looks like the form I
> would use. Things pretty much turn out I'd file a 1040 with zero's
> and perhaps this 8606, and that's all I'd have. Wanted to ask the
> guys whom would know, does the solution I've gathered sound like what
> I'd want to do- or, should I obtain the services of an accountant?

Unless you made NONDEDUCTIBLE contributions to your IRA in the past
(and filed a 8606 form in that year) you have no need for form 8606 for
this withdrawal.

.

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