TP turned 59-1/2 in Sept of 2015. Exempt from 10% penalty?

[AZ-Tax]

TP is considering taking a partial IRA distribution today or tomorrow. Will the distribution be exempt from the 10% penalty OR does the TP need to wait until 2016 tax year? Would this be code 2 on the 1099R?

[kathyc2]

TP is considering taking a partial IRA distribution today or tomorrow. Will the distribution be exempt from the 10% penalty OR does the TP need to wait until 2016 tax year? Would this be code 2 on the 1099R?

No penalty as long as at least 59 1/2 on date of withdrawal. It should show as code 1 on 1099-R.

[AZ-Tax]

Box 7, code 7 says American Funds

No penalty as long as at least 59 1/2 on date of withdrawal. It should show as code 1 on 1099-R.

I had the TP on the phone and we called American Funds retirement services and they told us the 1099-R they issue, code 7 will appear in Box 7 and 2b "taxable amount not determined" will not be checked. IRA box will be checked. In Pro Series if I choose code 1, 10% of gross will appear on line 59 of form 1040. Code 7, no amt appears on line 59.

[kathyc2]

I had the TP on the phone and we called American Funds retirement services and they told us the 1099-R they issue, code 7 will appear in Box 7 and 2b "taxable amount not determined" will not be checked. IRA box will be checked. In Pro Series if I choose code 1, 10% of gross will appear on line 59 of form 1040. Code 7, no amt appears on line 59.

Yep, my bad. 7 is normal distribution not 1.

As far a "taxable amount not determined" goes, it will appear on all traditional IRA distributions. Reason is the holding company does not know or track if the IRA has basis.

[DaveO]

A few years ago I had some clients that had converted their Trad to Roth IRA's on the advice of their investment rep. They didn't have the cash to pay the tax so they took some distributions to do so. Some 1099R forms were coded 1 and some 7. I requested account records from the rep and looking closely realized that the code 1 1099 forms were for amounts taken 1 week before the husband turned 59 1/2. They have a new rep now.

[Burke]

I would have thought it would be a code 2, early distribution not subject to penalty.

[DaveO]

Not early if you are 59 1/2.

[FEDUKE404]

Just the facts

I had the TP on the phone and we called American Funds retirement services and they told us the 1099-R they issue, code 7 will appear in Box 7 and 2b "taxable amount not determined" will not be checked. IRA box will be checked. In Pro Series if I choose code 1, 10% of gross will appear on line 59 of form 1040. Code 7, no amt appears on line 59.

That's perfectly logical.

Code 1 will likely generate a penalty (look for exceptions?). Code 7 will likely not generate a penalty. (Could you have BOTH in the same year? I think so!)

But there is a world of difference between determining "taxable amount" and determining any applicable "penalty."

FE