My husband's 1099R has code 7D in box 7. Why did turbo tax complete form 5329 and list the 1099R taxable amount on line 2 with an exception code of 12?

[ThomasM125]

Form 5329 was apparently completed to remove a penalty for early withdrawal of funds from a retirement account.

The exemption code of 12 would indicate that the distribution was incorrectly coded as being subject to an early withdrawal penalty because the recipient had not reached the age of 59 1/2. This would happen if it was an early distribution but you indicated that there was an exception to the penalty. You can learn more about exceptions to the early withdrawal penalties in this IRS notice.

[Ellis0822]

My husband is age 70 - so there was no early withdrawal of funds.  The proceeds are from a paid up life insurance policy which was rolled over to create this annuity - equal annual payments for 10 years.  The code of 7D on the 1099R box 7 indicates that the amount is a "normal distribution" and an "annuity payment from a nonqualified annuity".  Do we need to file form 5329 and if we do need to file it, what would be the correct exception number on line 2 of that form? And how do I correct Turbo Tax? 

[BillM223]

Any chance you checked the IRA box on the 1099-R? Code 7D is not a valid code for an IRA and this confuses TurboTax.

[Ellis0822]

Thank you for the suggestion. However, I just checked and the IRA box is not checked.  My husband has another small annual annuity payment with a distribution code of 7 and Turbo Tax handled that properly with no form 5329 completed. I just deleted the 1099R information and entered it again.  Same thing - form 5329 was created with the exception code of 12.  Do you  have any other suggestions?  After reading the IRS publication for form 5329, I feel that the form 5329 is not needed at all.  How can Turbo Tax be corrected so I can e-file my taxes?

[BillM223 · Accepted solution]

I will make this suggestion...if line 4 on your 5329 is zero or blank, then you should be able to e-file even though you have that 5329, because although the exception seems unnecessary, it doesn't add any tax to your return.

Usually taxpayers don't want the 5329 added because it forces them to upgrade the product so costs more, but it seems to me that you already have the CD/download product, so that doesn't matter to you.

Since it looks like you can see the 5329, are there any other entries on this form besides in Part I?

Or you can send us a sanitized version of your return so we can look at it.

Can you do me a favor? Can you send me a "token"? A token is a database index that points to a sanitized version of your return (i.e., TurboTax has removed all personal references in the return before putting it in our secure database). Here are the instructions:

TurboTax Online:  

Click Tax Tools in the menu to the left.

Click Tools, and then

Click Share my file with Agent.

A pop-up message will appear. Click OK to send the sanitized diagnostic copy to us.

Provide the token number that is generated onto this thread.

TurboTax Desktop:

Select Online menu if the customer is using Windows. Select “Help” if using a Mac.

Select Send Tax File to Agent.

A pop-up message will appear, and the customer will select, Send. If using Mac "Send Tax File to TurboTax Agent" 

Note: Desktop will save a file to your computer unless you uncheck the box.

Another message will appear. Provide the token number that is generated onto this thread.

At the bottom of your reply (with the token) add "@" "BillM223" (without the space in between and without the double quotes) so I will be notified.

This will let us see what is happening on your return. Thanks.

[Ellis0822]

13563577630391719-83803783

@BillM223

Where on the my desktop did it place the sanitized copy? Will you get back to me soon? Including the form does not add to my taxes, but it is not correct to include it.  I expect Turbo Tax to work properly. Right now it appears that there could be an issue. I will delay submitting my taxes until I hear back from you.

[BillM223]

Unfortunately, our automated checker for phone numbers and other PII removed the token number. Ever since our token numbers went to 7 digits (late last year), we have had this issue.

Could you do me the favor of repeating the number, but spelled out digit by digit, like one-two-three, and so on?

Thanks!

[Ellis0822]

The token number is 25 digits long, not 7.  Do you still want it?

@BillM223

[VolvoGirl]

@Ellis0822   You can post a screenshot of the token # in a reply.  

[BillM223]

Yes, but now I am really puzzled...when did token numbers get to be 25 digits???

Well, give me what you have.

[VolvoGirl]

Yes I've noticed that it is now 25 digits this year.  I wonder why.

[BillM223]

@Ellis0822 

What I did with your sanitized return was this: I deleted your 5329. It stayed deleted. So you can file now.

Why did this happen? My guess - and this is only a guess - is that there was something off with codes 7D earlier in the year, and so the software created the 5329 and exception code of 12.

But at some point (recently), the software was updated so that the 5329-T wasn't created any longer.

But since it already existed, it didn't go away.

But when I deleted the 5329-T in Forms mode, the same code did not recreate it...so it's gone.

Try it and see if that works for you.

@VolvoGirl I am told it is now either 25 or 7 digits...now you know as much as I do 😉

[Ellis0822]

I went back into Turbo Tax and the form is still showing on my end. How do I delete that form on my return? Or what can I do to correct the issue on my end? Turbo Tax automatically checks for updates and downloads them each time I open the software.

@BillM223

[BillM223 · Accepted solution]

This may be my bad.

In testing, I do all sorts of things, which I don't necessarily remember. Shame on me for giving you the full story (as I remember it).

Do this...

1. write down (if you don't have a paper copy) the 1099-R that we are talking about.

2. Delete this 1099-R (either in Forms mode or in Step-by-Step)

3. Check Forms, and see if the 5329-T had gone away (I don't think it will yet).

4. Since you are already in Forms mode, delete the 5329-T.

5. Save your tax return.

6. Reopen your tax return.

7. Re-add your 1099-R

8, Now see if your 5329-T is gone.