401K - 1099R - Box 7 - code what?

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  • Black Bart
    Senior Member
    • Jun 2005
    • 3357

    #1

    401K - 1099R - Box 7 - code what?

    Can't seem to remember this: If a factory shuts down and terminates my under age 59 1/2 employee, should payroll dep't. put a code "2" in box 7 allowing him to beat the 10% penalty if he doesn't roll it over.

    OR, are they supposed to put a "1" in the box and he has to roll it over even if he is out of a job.
  • DonPriebe
    Senior Member
    • Sep 2006
    • 526

    #2
    Use Form 5329

    The employer correctly puts code 1 - you client is under age and subject to the 10% penalty. If there is an exception, then your client files a 5329 to document that he doesn't owe the full penalty. As far as I know however, needing the money just because you are out of work is not an exception.

    Comment

    • Black Bart
      Senior Member
      • Jun 2005
      • 3357

      #3
      Yeah, thanks,

      Originally posted by DonPriebe

      ...needing the money just because you are out of work is not an exception.
      I know needing the money isn't an excuse, but I was thinking I'd seen some factories that shut down put a code 2 (which says "early distribution, exception applies (under age 59 1/2)") on the 1099s. Have you ever seen that?

      Comment

      • veritas
        Senior Member
        • Dec 2005
        • 3290

        #4
        Code 2 could be for

        Seperation of service and age 55.

        Comment

        • Black Bart
          Senior Member
          • Jun 2005
          • 3357

          #5
          Where

          Originally posted by veritas
          Seperation of service and age 55.
          did you find that?

          Thanks.

          Comment

          • Gene V
            Senior Member
            • Jun 2005
            • 1057

            #6
            Page 10 of the instruction for 1099-R

            Code 2--A distribution from a qualified retirement plan after separation from service where the taxpayer has reached age 55

            Comment

            • Black Bart
              Senior Member
              • Jun 2005
              • 3357

              #7
              Just found it too.

              Y'all are right -- the exception does exist.

              Pub. 575 - page 30 under Additional exceptions for qualified retirement.

              *From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees).

              Comment

              • veritas
                Senior Member
                • Dec 2005
                • 3290

                #8
                I had a client who

                received a distribution on a 1099R age 50 with code 2 checked. Could not figure out how the code 2 applied. It turns out it was a 457(b) plan which is not subject to the 10% penalty for early distribution.

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