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

[veritas]

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.

[Black Bart]

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).

[Gene V]

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

[Black Bart]

Where

Seperation of service and age 55.

did you find that?

Thanks.

[veritas]

Code 2 could be for

Seperation of service and age 55.

[Black Bart]

Yeah, thanks,

...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?

[DonPriebe]

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.

[Black Bart]

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.