L1: 401k DistributionI am 57 yrars old and lost my job that I worked at for 9 years. I needed to withdraw money from my 401. Someone told me there is a special form to fill out that will elliminate the 10% early withdrawl penalty. If so where do I find it and what is it called2009-05-27 18:57, By: denspan, IP: [18.104.22.168]
L2: 401k DistributionFrom your post, it appears that you lost this job in the year you turned 55 or later. If so, there is NO penalty on distributions taken directly from that employer’s plan. This penalty exception is claimed on Form 5329 if the 1099R you received did not code your distribution as an exception in Box 7 (Code 2).
If your plan allows you to take periodic or as neededdistributions, you can continue to drawfrom it. Do not roll it over to an IRA until you are 59.5 or you will lose the penalty free feature. However, ifthe plan will only let you take out the entire lump sum balance, then you may need to consider a SEPP plan in order to prevent a large taxable distribution in a single year that would inflate your tax bracket. This decision depends on how much you need an when, and what options the plan offers. A SEPP is best avoided if you can since it is not very flexible and you must maintain it for 5 years once you start (longer of 5 years or to age 59.5).2009-05-27 19:36, By: Alan S., IP: [22.214.171.124]
L3: 401k DistributionAlan:
The first paragraph in your reply generated a question that I have no experience with. Maybe you, Bill, GFW or someone elsewill have an answer.
Since distributions from a company sponsored plan, like a 401(k), to a former (retired or fired) employee who left the company during the year he / she turned age 55 or older is not subject to the Early Withdrawal penalty of 10%, then why wouldn’t the company code the Form 1099-R with a “Normal” distribution code of 7 in Box 7?
Jim2009-05-27 19:48, By: Jim, IP: [126.96.36.199]
L4: 401k DistributionJim,
The IRS Form 1099R instructions state that Code 2 applies for IRA distributions under age 59.5 for certain exceptions, and the age 55 separation is one of those.
The IRS appears to want specific custodian use of exception codes when taxpayer is not yet 59.5. For traditional IRAs, Code 7 cannot be used until age 59.5 is attained.
But this may not apply to certain life insurance distributions, andCode 7 does not apply for a Roth IRA at any time. Bottom line, different rules seem to apply to different types of accounts thatmust issuea 1099R.
The taxpayer can use a 5329 for several situations in addition to a SEPP where they qualify for a particular penaltyexception that was not recognized by the issuer. It is interesting that a SEPP appears to be the only situation where custodians are simply ignoring the coding instructions, but that is probably because it is the most complex to confirm, particularly in conjunction with the ability to aggregate accounts.2009-05-28 00:22, By: Alan S., IP: [188.8.131.52]
L5: 401k DistributionAlan:
I agree with your comments as they apply to IRA’s. However, the original poster and my last question addressed Form 1099-R coding for distributions from company sponsored, qualified plans such as401(k)’s and pension plans. If distributions from qualified plans for someone who retired / separated from the company in the year they turned age 55 or older, why wouldn’t their Form 1099-R be coded 7?
I retired from the US Air Forceat age 45 and have received a Code 7 on my Form 1099-R every year. Military retirement is not a true “pension plan” but it works the same as far as Form 1099-R reporting is concerned.
Jim2009-05-28 13:10, By: Jim, IP: [184.108.40.206]