Means Test - Taking early withdrawal from a ROTH IRA

[gman]

Does anyone know for certain if taking an early withdrawal from a ROTH IRA needs to be disclosed as income on the Means Test?

I already know that doing so for a REGULAR IRA or 401k shows up on the Means Test - but that is not the question I am posing here.

If one thinks about it - the IRS only treats any GAIN on a ROTH IRA that is under an early withdrawal as income because the tax on the income used to set up a ROTH IRA has already been paid.

So if one withdraws cash from a ROTH IRA in the 6 months prior to filing do you put down on the Means Test:

1 - The entire amount?

2 - Just the gain (assuming you have not taken a loss on the ROTH IRA investment)?

3 - Nothing?

If anyone can point to websites, cases, personal experience where this came up I'd truly appreciate it.

[gman]

bump....

[tcreegan]

Hi gman,

No help on the question but a caveat; remember that tax law is not BK law. BK courts count a lot of things as income that the IRS does not.

Good luck on getting a definitive answer,

Tom in Colo

[Azatty]

Bankruptcy courts are somewhate divided on the issue, but the most recent Bankruptcy Appellate Panel opinion I've seen states that distributions from IRAs ARE NOT included in the calculation of current monthly income. See e.g. In re Zahn, 391 B.R. 840 (8th Cir. BAP 2008); In re Cram, 414 B.R. 674 (Bankr.D.Idaho 2009); In re Wayman, 351 B.R. 808 (Bankr.E.D.Tex. 2006). The reasoning expressed in the cases I've read is that the income in an IRA or 401(k) is "received" at the time it is earned and placed in the IRA or 401(k) account.

[gman]

Bankruptcy courts are somewhate divided on the issue, but the most recent Bankruptcy Appellate Panel opinion I've seen states that distributions from IRAs ARE NOT included in the calculation of current monthly income. See e.g. In re Zahn, 391 B.R. 840 (8th Cir. BAP 2008); In re Cram, 414 B.R. 674 (Bankr.D.Idaho 2009); In re Wayman, 351 B.R. 808 (Bankr.E.D.Tex. 2006). The reasoning expressed in the cases I've read is that the income in an IRA or 401(k) is "received" at the time it is earned and placed in the IRA or 401(k) account.

Thanks for the cases!

I hope the courts continue with this approach. It just seems odd that there LINE 7 (Pension and Retirement Income) exists on the Means Test (B22A).

In my case - it would be an early distribution) to put food in the belly and keep the lights on.

[gman]

I just spoke with 2 different lawyers.

One said it is income on the Means Test - and the other said it was not.

I am so glad there is consistency to this madness!

[Floridagail]

My attorney said yes,

I made a error, I took out 6000 day after attorney meeting.( to pay attorney etc) She told me it was income in bank now as asset, also. She thought i would be okay So lucky for me, I was way below means test amount. I did not own home so I got some wildcard exemption in Florida. I had to list it on my petition also, when the trustee asked about it, I said yes I had to take it out to survive and for attorneys fees. She was like okay, I never did have to prove any of what i used it for.

chptr 7 Jan 2009