Tax Law (Questions About Taxes)/IRA and 529 Withdrawal

Advertisement


Question
Hello Mike!

Back in July I lost my job and I withdrew some funds from a 529 savings account I had for my daughter to pay some bills.  When I lost my job I transferred my 401k to my traditional IRA.  I am just now starting a new job job and racked up some credit card debt to pay bills.  Here's my questions:

1)  Can I be panlized for drawing funds from the 529 account?  Since that wasn't pre-tax money, I don't see why I would be penalized.

2)  Is there a way to draw funds from my IRA to pay off my credit card debt incurred while I was unemployed without incurring the 10% penalty?

Thanks in advance,
Chris

Answer
Chris,

Mike couldn't take your question, but I can give you an answer.

The entire amount of the withdrawal from the 529 plan is subject to a 10% penalty, as it was not used for a qualified purpose.  In addition, any of the withdrawal represented by earnings on the amount in the plan is subject to income tax.

If you withdraw from your IRA to pay off credit card bills, you will be subject to income tax and a 10% penalty on the amount of the withdrawal.  If you are 59 years of age or more, you are not subject to the penalty.

Hope this helps.

John Stancil, CPA

Tax Law (Questions About Taxes)

All Answers


Answers by Expert:


Ask Experts

Volunteer


John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

©2016 About.com. All rights reserved.