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Distribution Code

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ByDRS

L1: Distribution CodeHello guys, I have an IRA with Vanguard that I am about to start SEPP payments from. I an 53 yrs old and I plan to use the Amortization method. When filling out the form with Vanguard to start taking distributions it ask with distribution code you want them to use on the 1099-R form each year. I have been searching the web and I see 2 different codes. One is code 1, Early distribution, no known exception (under age 59.5). The other code is code 2 Early distribution exception applies (under age 59.5). My question is which code do I tell them to use so I don’t get in trouble with the IRS ?
I really appreciate any help.2009-08-03 20:30, By: DRS, IP: [97.73.64.171]

L2: Distribution CodeIf the IRA Custodian gives you a choice for a 72(t) distribution code on the IRS Form 1099-R, TAKE THE 2!
Most custodians have resorted to coding all pre 59.5 distributions with Code 1, which requires you to file IRS Form 5329 toreceive the early distribution exception. Code 2 just plugs into the tax program and runs along just fine.
Be sure you have good, accurate documentation for your 72(t) plan calculations in case you do get audited.
Jim2009-08-03 20:52, By: Jim, IP: [70.167.81.119]

L2: Distribution CodeMy understanding form other posters is that Vanguard would not provide the “2” exception coding. What is the edition date printed on this form?
In any event, request the “2” coding, but time will tell if that is what you will get. But if they code it with a “1” and you have a valid plan, just attach Form 5329 to your return and enter the exception code “02” on the Form. this is not a problem or a red flag sincemost 72t plan participants are having to attach a 5329 due to IRA custodian reluctance to underwrite the validity of these plans and to provide the exception coding.2009-08-03 20:56, By: Alan S., IP: [24.116.165.60]

L3: Distribution CodeThe reason that Vanguard and most financial institutions now use code1 is that they have no way of knowing if you have a valid SEPP 72-T plan, or if your figures are correct. Without a copy of your birth certificate, they have no proof of your age. And how could they check the world to see if you have any other IRA account as part of this or another SEPP 72-T plan, or if you are using the same account in 2 different plans ? Look what happened to Madoff’s clients who trusted him.2009-08-03 23:42, By: dlzallestaxes, IP: [72.78.231.205]

L4: Distribution CodeThanks to everyone for your help. After doing more research with Vanguard you guys are right, they will not code exception code 2 on the 1099-R. I will have tofile form 5329 with code 2 each year myself.
Thanks again for your help.2009-08-04 14:58, By: DRS, IP: [97.73.64.170]

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