topic Re: Form 1099-R in Retirement tax questions

Form 1099-R

dgurro — Tue, 26 Jan 2021 14:38:24 GMT

Hello. I receive a 1099-R with Distribution Code U. This is for Quarterly Dividends payments received from my Company ESOP plan. I have two questions:

TurboTax is asking if I was 59-1/2 when I received the money? I turned 59 in November 2019, so in May 2020, I would have been 59-1/2. Do I have to answer NO I was not 59-1/2 when I received the money since I received the first quarterly dividend in March 2020?

I'm just wondering... I turned 60 in November 2020. Will I receive a 1099-DIV instead of a 1099-R in Year 2021?

Thank you.

Re: Form 1099-R

ToddL99 — Tue, 26 Jan 2021 15:41:46 GMT

Your answer to the "Were you 59-1/2?" question won't affect how the distribution is taxed. Cash dividend distributions made by an ESOP are not subject to the 10% penalty for early distribution.

Technically, if the entire amount reported on the Form 1099-R was paid in March 2020, you would NOT have been 59-1/2 years at the time you received it. The 59-1/2 year rule for retirement plan distributions, however, is only used to determine if an early-distribution penalty applies; as stated earlier, cash dividend distributions made by an ESOP are not subject to a penalty for early distribution.

As long as the ESOP ("the Plan") pays the cash dividends, you will receive a Form 1099-R. If the company pays the cash dividends directly to you (not through the ESOP), then you will receive a Form 1099-DIV (per IRS Announcement 2008-56).

Reporting Requirements for Section 404(k) Dividends from ESOPs

Re: Form 1099-R

dgurro — Tue, 26 Jan 2021 21:28:13 GMT

Todd.... Thank you so much for your response. This really helps!

dgurro

Re: Form 1099-R

dmertz — Wed, 27 Jan 2021 00:18:00 GMT

The answer to the age question is irrelevant to a code U distribution since code U distributions are never subject to an early-distribution penalty.

Re: Form 1099-R

dgurro — Wed, 27 Jan 2021 01:26:29 GMT

Thank you so much for your response.