Form 5329 required when 1099-R Box 7 Distribution Code = 1 and the Rule of 55 applies?

[confoundedbr549]

Received the TurboTax confirmation that no additional (10%) tax applies. Therefore, why should a Form 5329 be required?

[DanaB27]

Yes, if you took a distribution from a Qualified Retirement Plan then there is an exception to the 10% early withdrawal penalty when an employee separates from service during or after the year the employee reaches age 55. Form 5329 will lists exceptions on line 2. Therefore, Form 5329 may need to be included on your tax return if your Form 1099-R doesn't show the exception code 2 in box 7.

[dmertz]

Distributions from IRAs (IRA/SEP/SIMPLE box marked on the Form 1099-R) are not eligible for this penalty exception.  Only distributions from the qualified retirement plan like a 401(k) provided by the employer from which you separated in or after the year you reached age 55 qualify for this exception.

Normally the plan knows that you separated from service with the employer that provides the plan in or after the year you reached age 55 and they use code 2 instead of code 1 to indicate that the distribution is exempt from the penalty.  Check with the plan administrator to be sure that they know your separation date and your date of birth.

Form 5329 is required to claim this exception with code 01 on line 2 if you qualify for the exception but the distribution was reported with code 1 instead of code 2.

[Laf923]

Does this mean that of the code 2 exception is noted in box 7 , that a 5329 is not required?

[dmertz]

If the Form 1099-R has code 2, nothing about this Form 1099-R should be present on Form 5329 Part I.

[Laf923]

Thanks but just to be clear ... that means I wouldn't need a 5329 at all?.

Does the same rule apply to if box 7 has a code 1 ? This code is correct as a oenalty will have to be paid and my understanding is a 5329 won't be required for this type however the amount would have to appear in a particular section so that the penalty would be properly calculated. 

It's difficult to follow 1040 instruction when you are using e -file anywhere and forms dont specify parts 1, 2 etc.

Thanks for the help!

[dmertz]

There are eight other parts to Form 5329 other than Part I, any one of which might apply for some unrelated reason and require that Form 5329 be included in your tax return.  All that can be said with regard to the Form 1099-R with code 2 in box 7 it that it does not represent a distribution that requires Form 5329 to be part of your your tax return.