topic Re: 1099r box 7 incorrect code in Retirement tax questions

1099r box 7 incorrect code

Elpete77 — Tue, 14 Jul 2020 06:34:33 GMT

Received 1099-r for distribution from 457b, had to take 2 distributions over the course of 2019. One 1099 has box 7 marked correctly as 2, the other has box 7 marked incorrectly as 1. I do believe distributions from a 457b is not penalized (though ordinary income tax is levied). Do I need to request a corrected 1099r from PAYER and file an amended return, or can I simply say both distributions should be using distribution code 2?

Re: 1099r box 7 incorrect code

dmertz — Tue, 14 Jul 2020 13:25:51 GMT

If you ever rolled money over to a 457(b) that did not come from native funds in a 457(b), the 457(b) plan is required to track the rolled over funds separately since distributions of those funds are subject to an early-distribution penalty, reported with code 1 if the distribution occurred before age 59½. The fact that you received two Forms 1099-R from the 457(b) suggests that your distributions came from a combination of native 457(b) funds and rolled over funds.

The separate tracking is an anti-abuse provision to prevent one from rolling in funds from, say, an IRA, and then trying to avoid the early-distribution penalty on those funds by distributing them from the 457(b) instead of directly from the IRA.

Re: 1099r box 7 incorrect code

Elpete77 — Tue, 14 Jul 2020 14:47:51 GMT

Thank you for your reply. The funds coming out of the 457 were all native, just 2 distributions from same account a few months apart. Perhaps I need to complete a form 5329 and mail in my return.

Re: 1099r box 7 incorrect code

dmertz — Tue, 14 Jul 2020 16:13:44 GMT

If the funds were all native 457(b) funds, it's really odd that the payer would use code 1. It might be worth asking the plan administrator about it.

As indicated in the instructions for Form 5329 line 2, you can claim an Other reason exception to the early distribution penalty for "Distributions from a section 457 plan, which aren’t from a rollover from a qualified retirement plan." You can do this in TurboTax and e-file. Either click the Continue button on the Your 1099-R Entries page or go to Other Tax Situations -> Additional Tax Payments -> Extra tax on early retirement withdrawals, indicate that it's a Qualified retirement plan, then make the entry in the Other box on the page titled "These Situations May Lower your Tax Bill."