1099-R Distribution Code

[Guest Giovanni]

Which code do you use on the 1099-R when an employee separates from service at age 58? The 1009-R instructions seem to say you use code "1", although based on Sec. 72(t) (2)(A)(v) it seems you should use code "7".

[Appleby]

Code '7' is used to report a 'normal' distribution. By definition, a normal distribution is one that occurs on or after the individual attains age 59 ½ .

For an individual who is separated form service age 55, the code will be 1. However, the individual will claim relief from the early withdrawal penalty by filing IRS form 5329.

[Guest F1fan]

What about code 2?

[Guest Giovanni]

You're right, code "2" seems to be the correct code for this.

[Appleby]

If the distribution and the 1099-R is being processed by the plan administrator, then the plan administrator may be willing to use a code 2. However, if the issuer is a custodian, say for one of those prototype qualified plans- then they usually use a code 1. Custodians/trustees that issue 1099-Rs generally use code 2 only for 72(t) distributions- for other types, separation from service after age 55, first time home buyer, to pay medical insurance etc ( from IRAs)., the taxpayer is forced to file form 5329... because the IRS does not require the issuer to use code 2 in these instances