1099-R with code 1, but should it be changed?

[Denne]

My client lost his job due to his disability. He was also unable to draw unemployment due to the fact they considered him unemployable. He did draw from his retirement funds in order to pay his living expenses. He was awarded Social Security Disability toward the end of last year. He did not inform the company of his disability status when he drew the first two times, but did the last time....so.....his 1099R's for the first two times are showing the income as subject to early withdraway penalties. Should the 1099's be changed or is there another way to still file his taxes without the penalties and still efile? Thanks for your suggestions and knowledge.....

[Julie]

Instructions for 5329, page 3.

Distributions due to "total and permanent" disability are nontaxable, exception #3.

My client lost his job due to his disability. He was also unable to draw unemployment due to the fact they considered him unemployable. He did draw from his retirement funds in order to pay his living expenses. He was awarded Social Security Disability toward the end of last year. He did not inform the company of his disability status when he drew the first two times, but did the last time....so.....his 1099R's for the first two times are showing the income as subject to early withdraway penalties. Should the 1099's be changed or is there another way to still file his taxes without the penalties and still efile? Thanks for your suggestions and knowledge.....

[Tax Prep by Deb]

I agree and have done just that with out any problems.

Deb!

[taxtrio]

I agree and have done just that with out any problems.

Deb!

Not subject to 10 percent penalty if withdrawn AFTER the date he was declared disabled by Social Security. Often a person receives their determination from social security and it is "retroactive" to the dated deemed disabled and they get a catch-up check.

So you need to know both the dates of the distributions, and the date of his determination of disability by social security to answer your question.

Yes you can ammend back into a prior year to recover the 10 percent penalty if it goes back into prior tax years.

[kcjenkins]

And please note that you do NOT change the code on the 1099R, you report is as received. You then add the 5329, and claim the exception to the penalty there. Doing it that way means no nasty letters from IRS later.

[Booger]

And please note that you do NOT change the code on the 1099R, you report is as received. You then add the 5329, and claim the exception to the penalty there. Doing it that way means no nasty letters from IRS later.

Contraire...had a client who met a exception to the penalty, and Form 5329 was attached to the 1040.

STILL got a letter from the IRS, which tried to assess the 10% penalty tax. Took a letter to get them to

back off.

Booger