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Level 1

My 1099-R has Box 7 as 7 for the distribution code. I'm 63 yrs. old & collecting Social Security Disability benefits. Can I or should I change the distribution code to 3?

I have been on Social Security Disability for over 10 years.  Would that affect previous years tax returns?

2 Replies
Level 18

My 1099-R has Box 7 as 7 for the distribution code. I'm 63 yrs. old & collecting Social Security Disability benefits. Can I or should I change the distribution code to 3?

The IRS defines disability for the 1099-R as follows:


"(7) Meaning of disabled

For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require."

See IRS Section 72(m) (7).

The proof that the "Secretary may require" is a letter from a physician certifying that you are "unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration".

You should always enter the 1099-R as it is printed, unless you know it to be wrong, in which case you contact the retirement plan administrator and get a corrected one.

However, the effect of Code 3 (Disabled) is to avoid the early distribution penalty, not tax altogether.

The early distribution penalty happens if you withdraw money from a retirement plan prior to the age of 59 1/2 (55 in certain cases).

Since you are 63, this does not affect you, so changing the code to "3" would not change your return and might draw IRS scrutiny.

As for the previous returns, you can go back only 3 years to amend a return (right now, that's 2013, 2014, and 2015). If you didn't pay the early distribution penalty in any of those years, then there is no point in amending those returns, either.

Sorry.

Level 20

My 1099-R has Box 7 as 7 for the distribution code. I'm 63 yrs. old & collecting Social Security Disability benefits. Can I or should I change the distribution code to 3?

It's inappropriate for the Form 1099-R to have code 3 if the distributions being reported on the form were made after you reached age 59½.  Section 72(m)(7) is defined in the context of the penalty for an early distribution.  Without an early distribution, section 72(m)(7) does not apply.