1099-R and post age 55 distribution

[pmacduff]

This has always puzzled me and I'm pretty sure there are other threads on this but I can't find them!

Anyway - participant in a profit sharing plan terms at age 58.  takes cash payment distribution the following year but before turning 59 1/2.  In reviewing the 1099-R codes, I think the 1099-R code should be a "2" because the participant termed "in or after the year the participant has reached age 55" (quoted from the 1099-R instructions; code 2) and not a "7" although the participant will be 59 1/2 before the end of 2017.  It doesn't appear that code 7 applies in the year a participant turns 59 1/2 but rather after they turn 59 1/2.

Does anyone know why didn't they just make the age 55 instead of 59 1/2 to avoid the 10% excise? Is this a leftover from when pension plans were more prevalent and more people took early retirements? 

I can only think of two examples of those between 55 and 59 1/2 who might still pay the 10% excise  - active participants between 55 and 59 1/2 who take an 1.) allowable in-service distribution or 2.) hardship withdrawal.  Any other examples?

 

[ETA Consulting LLC]

I agree with you.  I generally review each situation against the written rules as they come up; since there are potentially unlimited circumstances (e.g. medical payments exceeding 7.5% of AGI, but that would require an adjustment on the tax return and not the Form 1099R).  But, I agree with everything you're saying.

Good Luck!

[txdd]

Most obvious example (to me) is an employee who terminates before the year he/she reaches 55. Then the age 55 exception does not apply and he/she must wait until age 59 1/2.

[pmacduff]

thanks for the replies.  txdd - I was referring only to those participants terminating after age 55 but before age 59 1/2 as to the applicable 1099-R code to avoid the 10% excise.  thanks again.