Inherited annuity causing 10% penalty

Forum|Forum|5 years ago
March 7, 2021
1 reply
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My husband passed away in Jul 2020 and I inherited his annuity. He had recently converted to the Lifetime Income Credit and was receiving monthly payments. I am not yet 59 1/2. On the 1099-R that I received in my name - the code in block 7 shows a "1" which means "early withdrawal". Did the company code it incorrectly? Should this have been a "4" for "Death"? Turbo tax did ask the question whether it was inherited and for the info on the person who passed away. It does not provide a form 5329 to allow for any exceptions to avoid the penalty for early withdrawal.

Best answer by gloriah5200

Yes, generally, if you inherit an annuity from your spouse, then you are "treating it as your own" and you transfer it over into your own name, ssn, etc. If you take withdrawals from your retirement plan before you are of retirement age, you will be assessed an "early withdrawal penalty" of 10% of the amount distributed on your return unless you meet an exception, which are listed at page 4 of the following link:

IRS Instructions for Form 5329

If this was a different type of plan that the payer said was not subject to 10% additional tax, then please contact the payer for a corrected Form 1099R.

gloriah5200Answer

Level 10

IRS Instructions for Form 5329

If this was a different type of plan that the payer said was not subject to 10% additional tax, then please contact the payer for a corrected Form 1099R.