I received notice of a settlement of an ERISA lawsuit from a 401k plan I used to participate in. I decided to take the distribution in cash since I’m over 59.5. When I received the 1099-R, it was coded as an early distribution. How do I fix this?
If you think the code is erroneous, you should contact the payer to have a corrected Form 1099-R issued.
Don't change the distribution code on your 1099-R when you're entering it into TurboTax. If the code that you enter for the 1099-R doesn’t match what the IRS has on record for the same 1099-R, this will raise a red flag with the IRS.
You can claim an Other reason exception to the early-distribution penalty. Go to Other Tax Situations -> Additional Tax Payments -> Extra tax on early retirement withdrawals and enter the amount in the Other box.
Interesting and I wonder if it’s the same ERISA settlement I received. Mine is coded “4.00” which of it refers to “4” means death. Wrong of
course.
Reaching anyone to correct the 1099-R is impossible. I’m beginning to wish I had opted out!
If you are at least 59 1/2, you should follow the steps provided by @dmertz to use an exception to the penalty if necessary. Your code 4 however would eliminate the 10% penalty or a code 2 would also eliminate any early distribution penalty without any extra steps.
Thank you for your quick response!
My taxes are typically very simple and I have been doing them on my own for 30+ years pretty
much using TurboTax for as long as it’s been available. So the suggestion of “consulting my tax advisor” is pretty unhelpful and that’s what I’m sure I will be told if I could actually reach anybody who handled the 1099R distributions in this case
Seems then that I will need to use the code 4 (4.00 is how it actually reads) as provided.
Thank You again!
Code 4 suggests that you received the distribution as beneficiary of a deceased participant. With regard to any early-distribution penalty, code 4 is treated the same as code 2 or code 7, meaning that it is not subject to this penalty. The only difference is that code 4 just means that a non-spouse beneficiary is not permitted to roll over this distribution.