Retirement tax questions

Thank you! 

1. Code 7 is a regular distribution, no 5329 on federal.  The NY exclusion generally requires periodic payment. So you may not qualify. The rules are different on inherited items. For personal pension plans, NY Pub 36 page 13 states:

 If you became age 59½ during the tax year, the exclusion is allowed only for the amount of pension and annuity income received on or after you became 59½, but not more than $20,000. Qualified pension and annuity income includes:

• periodic payments for services you performed as an employee before you retired;

• periodic and lump-sum payments from an IRA attributable to compensation for personal services, but not payments derived from contributions made after you retired that are not attributable to compensation for personal services;

• periodic distributions from an annuity contract (IRC section 403(b)) purchased by an employer for an employee, and the employer is a corporation, community chest fund, foundation or public school;

• periodic payments from an HR-10 (Keogh) plan, but not payments derived from contributions made after you retired;

• lump-sum payments from an HR-10 (Keogh) plan, but only if federal Form 4972, Tax on Lump Sum Distributions, is not used. Do not include that part of your payment that was derived from contributions made after you retired;

• periodic distributions from deferred compensation plans sponsored by state and local governments and tax-exempt organizations (under IRC section 457); and

• periodic distributions of benefits from a cafeteria plan (IRC section 125) or a qualified cash or deferred profit-sharing or stock bonus plan (IRC section 401(k)), but not distributions derived from contributions made after you retired.

2. Yes, the penalty shows on Sch 2 line 8 and if there is no other reason for the 5329, it is not necessary to add the form. The program goes through the questions for the exceptions to look for any possible reason to reduce the penalty. Without any exception, no form 5329 is correct.