I am under age 59 1/2 and receive annual SEPP payments from a non-qualified variable annuity.
For privacy, the numbers below are not the actual numbers on my 1099-R, but they are proportional.
On the 1099-R form that I get each year it will say...
Box 1) Gross distribution $10,000
Box 2a) Taxable amount $10,000
Box 4) Federal income tax withheld $1,000
Box 7) 2D whereby 2 = Early distribution (except Roth IRA), D = Annuity payments from nonqualified annuities
Everything else is blank
With a SEPP, you are not supposed to pay the 10% penalty, even when less than age 59 1/2. So what exactly is the $1,000 in box 4 being withheld for? Just for regular ordinary income tax? This annuity has indeed appreciated in value quite a bit.
And finally, is it necessary to fill out anything in part 1 of Form 5329? My understanding is that, because of the distribution code (2D), filling out this form 5329 is not required. Is it optional? It is odd that just this year, for the first time, TurboTax began asking a new question after entering the 1099-R information...
These situations may lower your tax bill. If you used the money you took out of an annuity for any of the following reasons, you may not have to pay the additional tax. Enter the amounts that you used for any of the following:
Equal periodic payment
permanent disability
death
IRS levy
other reason
