I am 57 and have been taking SEPP distributions that were setup from my financial management company in accordance with IRS rules for two years. Each year when I enter the 1099-R into TurboTax the first thing it alerts me is that I would be penalized 10%. In a post on October 2023, it helped my to recognize that the problem lies in how my financial organization codes box 7 on the 1099-R form. My company codes it as a 1, when it should be a 2. I called them and they indicated that they no longer code box 7 with a 2 , and they only use 1 since 2006 due to some IRS ruling in 2002. My question is what other options within turbotax can I use to correct my situation, so I can show a valid IRS approved SEPP disbursements without penalities?
The financial institution is not required to use code 2 instead of code 1. By using code 1, the financial institution is claiming no responsibility for ensuring that the distributions meet the 72(t) SEPP requirements, leaving that responsibility up to you by reporting on Form 5329. When after clicking the Continue button on the page that lists the Forms 1099-R that you have entered TurboTax offers to see if you have any situation qualifies for a penalty exception, simply enter the corresponding amount in the box provided for equal periodic payments.
The financial institution is not required to use code 2 instead of code 1. By using code 1, the financial institution is claiming no responsibility for ensuring that the distributions meet the 72(t) SEPP requirements, leaving that responsibility up to you by reporting on Form 5329. When after clicking the Continue button on the page that lists the Forms 1099-R that you have entered TurboTax offers to see if you have any situation qualifies for a penalty exception, simply enter the corresponding amount in the box provided for equal periodic payments.
Thank you very much for this response. I will follow the suggestion once I get my documents for 2024. I also spoke with the IRS and they indicated that should I not be able to get Turbo Tax to eliminate the penalty, I can always write the IRS and submit a letter to request the penalty fee be returned.
"I also spoke with the IRS and they indicated that should I not be able to get Turbo Tax to eliminate the penalty"
It seems that the IRS individual you spoke to was unfamiliar with Form 5329. This exception to the penalty is claimed on line 2 of Form 5329 using code 02, something that TurboTax is quite capable of doing by making the entry as I described.