Installment Payments Over 10 Years

[DTH]

Are monthly installments payments over a period of 10 years or more paid to the participant from a 401(k) plan's trust considered an annuity? A question came up that if a participant is under age 59-1/2 (under 55 if separated from service) s/he should get a Code 2 on Form 1099-R as this type of installment payment is an annuity. Many recordkeepers tax report these as Code 1.

If you consider these annuities, please provide the applicable cites. Thank you.

[Belgarath]

I assume you are asking of this type of distribution would escape premature distribution taxation under an applicable exception under IRC 72(t).

No. The exception for substantially equal periodic payments under IRC 72(t)(2)(A)(iv) is for payments made for the life or life expectancy of the employee (or joint lives or joint life expectancies of the employee and designated beneficiary)

So unless they meet one of the OTHER exceptions, no dice.