Exceptions to code 1 - 1099R

[Black Bart]

My client withdrew most of 401K prematurely early last year -- not frivolously but not qualifying for the 10% penalty exception either. Two weeks later a car wreck inflicted severe, devastating, permanent life-altering injuries and taxpayer now needs every dime.

I'm looking for a way around the 1099's code one in box seven . The plan adminstrator says it was before the accident and can't/won't change it to a three (disability). True, but since it was in the same year and in such near proximity to the event, I'm wondering if there's a precedent/rule/exception to kill this large penalty. Anybody know of such? Thanks.

[BP.]

That sounds horrible. Could he possibly have out of pocket medical expenses that might qualify for exception #5? TTB 13-3.

[snowshine]

I have never seen anything in the law that says the distribution need be after the taxpayer becomes disabled, merely that they are disabled at the end of the tax year. Use code 3 on the 5329

[BP.]

I have never seen anything in the law that says the distribution need be after the taxpayer becomes disabled, merely that they are disabled at the end of the tax year. Use code 3 on the 5329

Sounds plausible - I only wonder about the language for exception #3- Distribution "DUE TO" disability- would that be provable if examined? "Due to" may imply "after" becoming disabled.

[Davc]

I have never seen anything in the law that says the distribution need be after the taxpayer becomes disabled, merely that they are disabled at the end of the tax year. Use code 3 on the 5329

Have you actually read the law?

(iii) attributable to the employee's being disabled within the meaning of subsection (m)(7) ,


A distribution can't be attributable to a future casualty.

[rgtaxservice]

...

You don't need a direct tracing of the funds or timeline of intent.

Look at this way - Taxpayer decides to withdrawl the money from an IRA for son's college, but three weeks after the withdraw the son decides he wants to weave baskets instead.

You would not code the exception just because the money was 'supposed' to be used for college.

This case is just the opposite. Taxpayer withdrew funds to spend freely but would up disabled instead.

If the taxpayer qualifies for an 03 get a doctors statement. Otherwise use an 05 for paid medical expenses.