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Ask the Expert: A flood of Sandy problems

Houses on Fire Island Avenue in Babylon Village

Houses on Fire Island Avenue in Babylon Village are seen Oct. 30, 2012, two days after superstorm Sandy swept through Long Island, causing flooding and damage to many homes in the region. Credit: Jessica Rotkiewicz

My home was flooded by superstorm Sandy. I had to take $20,000 from my IRA in February 2013 to pay the contractor to rebuild my house. Is that $20,000 still considered taxable income? Is there any leniency for IRA withdrawals taken by flooded homeowners?

Unfortunately, no. Congress has given victims of other disasters up to three years to replace or pay taxes on IRA withdrawals of up to $100,000, but it hasn't granted similar relief to Sandy victims.

If you're younger than 59½, you'll also owe a 10 percent early withdrawal penalty on the IRA distribution, unless you qualify for one of the exceptions. The 10 percent penalty is waived in eight scenarios -- four that are grim, and four more upbeat:

1. You're totally and permanently disabled.

2. Your unreimbursed medical expenses exceed 10 percent of your adjusted gross income.

3. The IRS is levying the IRA to collect your taxes.

4. You're dead and the withdrawal is taken by your survivors.

5. You used the IRA distribution to pay for qualified higher education expenses for yourself, your spouse, your children or your grandchildren.

6. You spent the money on health insurance premiums while you were unemployed.

7. You spent the money (up to $10,000) to purchase your first home.

8. You're taking a series of substantially equal annual IRA withdrawals based on your life expectancy. These are called 72(t) withdrawals, and you avoid the penalty only if you take them for five years or until you turn 59½, whichever takes longer.

In all the above situations, there's no early withdrawal penalty even if you're younger than 59½. But you still owe income taxes on the amounts you withdrew.

The bottom line IRA withdrawals are taxable income, even if you used them to rebuild after Sandy.

Websites with more information and

TO ASK THE EXPERT Send questions to Ask the Expert/Act 2, Newsday Newsroom, 235 Pinelawn Rd., Melville, NY 11747-4226, or email Include your name, address and phone number. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own advisers for your specific needs.

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