The Tax Blotter is a round-up of brief tax news.
Tax Blotter 022222
Generally, you must pay a 10% penalty tax on IRA withdrawals before age 59½, but there are several special exceptions written into the tax code.
Guidance on SEPPs. In new Notice 2022-6, the IRS has issued guidance on the early withdrawal exception for “substantially equal periodic payments” (SEPPs). There are three safe-harbor methods allowed, but two of them require payments that may deplete accounts. Now the IRS says you have a one-time opportunity to switch to the required minimum distribution (RMD) method, based on new life expectancy tables taking effect in 2022. The new guidance includes transitional rules.
Home sweet home. If certain requirements are met, no tax penalty is imposed on early withdrawals for first-time homebuyer expenses. This exception is available to anyone who hasn’t owned a home as their principal residence for the past two years. In addition, note that the homebuyer doesn’t have to be the same person as the IRA participant. One drawback: There’s a lifetime limit of $10,000 on the first-time homebuyer exception.
Get tax-smart. You can avoid the early withdrawal penalty if you use IRA funds to pay qualified higher education expenses. This includes any university, college, vocational school or other accredited public, private or nonprofit post-secondary school that is eligible for student aid programs offered through the Department of Education. Note that the list of qualified expenses goes beyond tuition and includes administrative fees; books, supplies, and equipment; and room and board for full-time students.
Thanks for reading CPA Practice Advisor!
Subscribe Already registered? Log In
Need more information? Read the FAQs
