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Frequent reasons the IRS notices are not correct is that the IRA distribution is not taxable because it is an indirect rollover, a recharacterized Roth conversion, a previously taxed excess contribution or deferral, or even a correctly reported Qualified Charitable Distribution or one to a Public Safety Officer.
FORBES: IRS Notices & Letters: It's Stop the Machine Time Again
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If the distribution equals the total of qualified education expenses, then none of the amounts in boxes 1-3 need to be reported on your tax return.
FORBES: Taxes From A To Z (2013): Q Is For Form 1099-Q
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If the distribution exceeds the total of qualified education expenses, then the earnings (box 2) will be reported on your income tax return at line 21.
FORBES: Taxes From A To Z (2013): Q Is For Form 1099-Q
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Earnings on Roth IRA assets are tax-free if qualified, and there is no required minimum distribution (RMD) amounts.
FORBES: Weave Your Own Retirement Safety Net
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Conversely, you may be able to roll over, tax free, a distribution from your traditional IRA into a qualified plan.
FORBES: Taxes From A To Z (2013): I Is For IRA Rollover
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To qualify for the section 72(t)(2)(C) exception the distribution must be made by the plan administrator to an alternate payee in response to a qualified domestic relations order (QDRO).
FORBES: Penalty On Qualified Plan Withdrawal To Pay Alimony
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At this point, governor Snyder could, theoretically, appoint the CEO of General Motors or any other qualified private citizen to come into your town and take over everything from the public services, to the distribution of state and federal tax dollars.
FORBES: Michigan Governor to Cut Taxes for Corporations While Cutting Services for the Poor and Middle Class