If I hit minimum retirement age 3/4 through tax year, how do I answer "Were you under your MRA when you received the distribution?" and answers are "Yes" or "No"?

[xmasbaby0]

Did you take the money out before your birthday--or after your birthday?  (or "half-birthday" for 59 1/2)

[rjs]

@xmasbaby0  I believe that TurboTax would only ask this question for a 1099-R with distribution code 3 (disability) in box 7. The disability pension was almost certainly paid monthly, but the total is all on one 1099-R for the year. Some of the monthly payments were made before the recipient reached the minimum retirement age for the plan, and the rest of the payments were made after minimum retirement age. The payments before minimum retirement age are supposed to be reported as wages on Form 1040 line 1, and the payments after minimum retirement age are supposed to go on line 4d. But there's no way to do that in TurboTax. In effect, TurboTax assumes that the person was either under or over minimum retirement age for the entire year. Answering Yes to the question puts the entire amount for the year on line 1, and answering No puts the entire amount on line 4d. But there's no way to split it (not even in forms mode). That's the OP's dilemma. I don't have a good answer for him/her.

@dkla5 Is there anything in your tax return that depends on the amount of your earned income, such as Earned Income Credit (EIC), child tax credit, child and dependent care credit, or an IRA contribution? If not, whichever answer you choose is probably not going to make any difference in your tax. I would just answer No and let TurboTax report the entire amount as pension income. The IRS is not going to question that.

[fanfare]

you must wait until you are 59 1/2 before taking action. 59 1/4 is not good enough.

[RBBrittain]

@fanfare For disability retirement purposes that is incorrect. In that case "minimum retirement age" is set by your retirement plan; it is the earliest age at which you could take retirement if NOT for your disability. This determines whether your disability retirement is reported as wages (100% taxable with no basis exclusion, eligible for EITC) or pension / annuity income (basis exclusion available if you made post-tax contributions to the plan, NOT eligible for EITC). Age 59-1/2 is only to determine if the 10% penalty for early payments MAY apply; there is likely an exception if you're over minimum retirement age but under 59-1/2.

I believe I will be running into this issue myself this tax year, as I became eligible to take early retirement under my former employer's plan. Alas, I'm using the IRS Free File version of TurboTax and the help question on what happens if you hit that age this year is missing (as it commonly is the IRS Free File version) so I'll be looking out for a more complete answer.

[dmertz]

The only thing that can be done in TurboTax is to split the Form 1099-R into two, one for the portion received before normal retirement age and the other for the the portion received after normal retirement age, answering the before-or-after-MRA question differently for each.

[rjs]

@dmertz  Wouldn't splitting the 1099-R result in an IRS notice about unreported income, because their computer can't match the 1099-R?

[dmertz]

I think that the IRS Automated Underreporter System only checks the amounts reported on the tax return's forms and schedules.  TurboTax-required splitting of a single Form 1099-R reporting rollovers from a qualified retirement plan with some going to a traditional IRA and some going to a Roth IRA doesn't seem to present problems, so I doubt that there would be a problem splitting a code 3 Form 1099-R.

[RBBrittain]

I did get a reply in another thread that the "split 1099-R" approach could cause issues if you have state withholding on your 1099-R because the state would get the individual 1099-Rs as entered in TurboTax, which would not match the state's e-filed 1099-R (received either directly or thru the IRS). In my case it may be more a matter of nomenclature, since my pension is 100% taxable as ordinary income either way (no basis exclusion), I wouldn't qualify for EITC based on counting it as earned income, and it has no impact on my Arkansas state return (Arkansas always treats it as pension income & doesn't have a state EITC). Perhaps the bottom line will depend on exactly how my pension plan reports it.

[fanfare]

when reported state withholding all adds up to the totals on all your 1099s , invented or not, there will be no problems.