We are trying to determine the correct drop down selection for the "State Code Type" in determining the retirement distribution.
On my wife's 1099R, box 7 has a "2" which, on the back of the 1099R states 'early distribution, exception applies (under age 59 1/2)'. What "exceptions" apply in this case?
Let me know if you need additional information.
Thanks!
The exceptions related to "Code 2-Early distribution, exception applies" are included in Table 1 or the IRS Instructions for Form 1099-R at this link. I've pasted them here as well:
Use Code 2 only if the participant has not reached age 59½ and you know the distribution is the following.
A Roth IRA conversion (an IRA converted to a Roth IRA).
A distribution made from a qualified retirement plan or IRA because of an IRS levy under section 6331.
A governmental section 457(b) plan distribution that is not subject to the
additional 10% tax. But see Governmental section 457(b) plans, earlier, for information on distributions that may be subject to the 10% additional tax.
A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.
A distribution from a governmental defined benefit plan to a public safety employee (as defined in section 72(t)(10)(B)) after separation from service, in or after the year the employee has reached age 50.
A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).
A distribution that is a permissible withdrawal under an eligible automatic contribution arrangement (EACA).
Any other distribution subject to an exception under section 72(q), (t), (u), or (v) that is not required to be reported using Code 1, 3, or 4.
Hi
I'm in a similar situation. The exception that applies to me is this one:
A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).
That means, I'm getting a fixed amount from this pension each month for the rest of my life. That's called a SEPP (substantially equal periodic payment), which is what's keeping you from getting the 10% premature distribution penalty.
Hope this helps!
Thank you David. That clears up a lot. It leads me to my next question regarding PA income tax on my wife's pension. Since the situations below are true:
>A distribution from a qualified retirement plan after separation from service in or after the year the participant has reached age 55.
>A distribution that is part of a series of substantially equal periodic payments as described in section 72(q), (t), (u), or (v).
Do we select, "I'm eligible; plan's eligible (No PA tax)" for the State Type Code when doing the taxes for Pennsylvania?
Being SEPP implies retirement income that is eligible barring any unusual circumstances. PA does not tax retirement income if you are eligible to retire from where the income is sourced.
For example: if the income comes from a company that requires so many years of service to retire.
Example 2: company may say eligible to retire after x years of service and y age combined.
Are you eligible to retire from the company making the payments? If so, then select eligible for no tax.