1099-R distributions pre 59.5 and some post 59.5 in the same year

[user17755251218]

I have a form 1099-R showing distributions for 2025.  Some of the distributions were received before I was 59.5 and some of the money was distributed after 59.5 in the same year. How do I report this so the post 59.5 money is not penalized for early withdrawal?

[JamesG1]

This TurboTax Help states:

Unless you qualify for an exception, you will pay a 10% additional tax penalty on the taxable amount of early distributions from an IRA (traditional or Roth) before reaching age 59 1/2.

When entering the IRS form 1099-R's, look for the screen Let's see if we can lower your tax bill which warns about owing the 10% additional tax penalty and the penalty exceptions.

[user17755251218]

I know there’s a penalty on early distributions. My issue or question is that some distributions were early and some were not early in the same year. Are all of the distributions for that year subject to penalty even though I was 59.5 when some/most of the money was received?

[LindaS5247]

No, only the distributions that you took before you turned 59½ are generally subject to the 10% early withdrawal penalty, and not all distributions for the year. The 10% penalty is calculated on a per-distribution basis, not on your total annual sum.

Your Form(s) 1099-R should be coded to reflect which ones were received before you turned age 59 1/2. If they are not properly coded, you should request corrected Forms 1099-R as these are reported to the IRS by the issuer of the form.

If the distribution was received before you turned 59 1/2 it should have Code 1. Code J is for an early distribution from a Roth IRA.

If Box 7 shows Code 1 or J, you may need to file Form 5329 with your Form 1040 to report the early withdrawal penalty. This form will be completed by TurboTax.

See also:

What do all the codes in Box 7 of the 1099-R mean?

An Early Withdrawal From Your 401(k): Understanding the Consequences

Please return to Community if you have any additional information or questions and we would be happy to help.

[dmertz]

What is the code in box 7 of the Form 1099-R?

Is the IRA/SEP/SIMPLE box marked?

Distributions made before and after age 59½ should have been reported on separate Forms 1099-R (except in the rare case where the distributions made after age 59½ are subject to penalty due to busting a 72(t) SEPP plan and causing everything to be reported with code 1).

[user17755251218]

My 1099-r does not have code 1listed, it has code 7,D listed.  I’m having this issue with early distribution penalties because when the TurboTax program asked me if this distribution was subject to early distribution penalties I was honest and said yes.  Someone else referred to the “let’s see if we can we save you money section”.  When the TurboTax program asked me if this distribution was subject to early distribution penalties and I replied yes the program just moved on to the next section, it didn’t ask me any more questions about the distributions or penalties on only part of the distributions. I called TurboTax help line and spoke to a representative about my issue. She directed me to contact the financial institution and have them send two 1099 -r forms separating the subject to penalties and not subject to penalties amounts and then entering the information as two 1099-r.  I did call the financial institution and was informed that they do not do anything like that and suggested I contact a CPA to resolve the issue. so, I’m back to square 1.  Again, the interview section asked if the amount was subject to early distribution penalties but never asked any follow-up questions during which I could have addressed my specific situation.  The TurboTax software seems very deficient in this area.  What do I do now because the way it stands I either pay thousands of dollars in penalties I shouldn’t have to pay or I bring my information to a CPA to do my taxes making TurboTax and all the time I spent using it useless?

[dmertz]

OK, the code D indicates that these are distributions from a nonqualified annuity or an insurance policy.

Were these distributions paid as a series of substantially equal periodic payments for life or for the joint lives of you and a beneficiary?  If so, these distributions are not subject to penalty.

Also, only the taxable amount shown in box 2a is potentially subject to an early-distribution penalty.  If that amount is zero, there is no penalty.

If either of these result in no penalty, just answer No when asked if the distribution was received before age 59½.

If these were nonperiodic distributions, the distributions come first from taxable gains, so the the taxable amount is first applied to the amount distributed before age 59½.  With nonperiodic distributions, after all of the gains have been distributed, your investment in the contract comes out tax and penalty free.

If you must report only a portion of the taxable amount as being subject to an early-distribution penalty, you'll need to split the Form 1099-R into two for entry into TurboTax.