Form 5329 required when 1099-R Box 7 Distribution Code = 1 and the Rule of 55 applies?

Forum|Forum|3 years ago
January 23, 2023
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Received the TurboTax confirmation that no additional (10%) tax applies. Therefore, why should a Form 5329 be required?

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Best answer by dmertz

Distributions from IRAs (IRA/SEP/SIMPLE box marked on the Form 1099-R) are not eligible for this penalty exception. Only distributions from the qualified retirement plan like a 401(k) provided by the employer from which you separated in or after the year you reached age 55 qualify for this exception.

Normally the plan knows that you separated from service with the employer that provides the plan in or after the year you reached age 55 and they use code 2 instead of code 1 to indicate that the distribution is exempt from the penalty. Check with the plan administrator to be sure that they know your separation date and your date of birth.

Form 5329 is required to claim this exception with code 01 on line 2 if you qualify for the exception but the distribution was reported with code 1 instead of code 2.

DanaB27

Yes, if you took a distribution from a Qualified Retirement Plan then there is an exception to the 10% early withdrawal penalty when an employee separates from service during or after the year the employee reaches age 55. Form 5329 will lists exceptions on line 2. Therefore, Form 5329 may need to be included on your tax return if your Form 1099-R doesn't show the exception code 2 in box 7.

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Laf923

Does this mean that of the code 2 exception is noted in box 7 , that a 5329 is not required?

dmertz

Employee

If the Form 1099-R has code 2, nothing about this Form 1099-R should be present on Form 5329 Part I.

dmertzAnswer

Employee

Form 5329 is required to claim this exception with code 01 on line 2 if you qualify for the exception but the distribution was reported with code 1 instead of code 2.