What is the proper distribution code to use on Form 1099R for an early

[Guest Kathleen Fouquet]

A DB plan participant is taking early retirement at age 55 and will be receiving monthly payments as calculated by the plan's actuary. What is the proper code to use in Box 7 of the 1099R? Should it be a 2, early distribution - exception applies, or 7 for normal distribution?

[Guest]

We use code 2 in your situation. It is not a normal (code 7) distribution as it is prior to normal retirement age.

[Guest Kathleen Fouquet]

Thank you for your reply. I agree with you, but the employer is saying that since a DB payout is an annuity (can't be altered or rolled), he believes the code should be 7. So I thought I would check with others in the business.

[Guest]

Kathleen,

The issue is controlledb the plan document. Normal distribution, relates to not an early distribution.

[Guest AFRICA6796]

Distributions from a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 are not subjected to the 10% premature penalty, i.e. they are an exception. However, unlike distributions for substantially equal series payments, 72(t) distributions, the IRS does not require a custodian or plan administrator to report these distributions with a code 2 (early distributions with a known exception). As a result, most custodians will report such distributions with a code 1. If the employer issues their own 1099-R, they may use a code 2. It CANNOT be a code 7, as code 7 is for distributions taken after age 59 ½.

If the 1099-R is issued with a code 1, then the participant may file IRS Form 5329 to claim the exception to the penalty.