TECHNICAL CHANGE NOTICE TCTP0801

for 2008 Edition of HowardSoft's Tax Preparer®

Early distributions from Roth IRA not reflected in Form 5329, line 1

Problem. An early distribution for Form 5329, line 1, is shown on screen 10 of Form 8606 (for taxable amount of nonqualified Roth IRA distributions reported in Part III of Form 8606), but no amount is shown on line 1 of Form 5329. As a result, Form 5329 is not automatically created and no 10% penalty is computed and posted to Form 1040, line 60.

Perspective. The problem affects only nonqualified distributions from a Roth IRA reported in Part III of Form 8606 (usually, those made before age 59-1/2 or before the required 5-year holding period ends). Furthermore, if married filing jointly, the amount subject to penalty may improperly appear on spouse's Form 5329.

Workaround. To correct an affected return, you must use the Override Key to access the line for Roth distrbs(early at any age) at the bottom of screen 1 of Form 5329, and enter the proper amount from Form 8606.

Solution. The problem is averted with release 2008.01i and later. However, for a return already exhibiting the problem, after you install release 2008.01i, you must change an entry on Form 5329 and then exit the return (or press the Recalc Key) in order correct the return.