1099R - Distribution Code L

[jmallard]

Hi,

This is the first time I've ran across a code "L" in the distribution code of a 1099R. Code L on the back of the form stats, "Loans treated as distributions." The client states that they had borrowed money from their 401k and were laid off work before being able to pay the loan back.

I know the money is taxable, of course, but my questions is, is it subject to the 10% Early Withdrawal Penalty?

The program software usually auto opens a Form 5329, but in this case it did not.

Just want to make sure the distribution is not subject to the penalty.

Thanks in Advance!

Jerry

[MN2V]

Depends on the age of the taxpayer...is he over 59 1/2?

[jmallard]

:angry: Forgot to mention that the taxpayer is under 59 1/2

[Lion EA]

Over 55 and left their employment?

[jmallard]

Over 55 and left their employment?

Stated above both were "laid off" work.

Jerry

[Lion EA]

I was giving you a possible exception to the penalty. You can compare your client's details to the instructions re the penalty.

[Gail in Virginia]

Did you fill int he taxable income box 2? I had an IRA this year that I failed to put the amount in that box since it wasn't in the box on the 1099R, and even though the amount showed up on page 1, the penalty did not automatically compute until I filled in box 2.

Just a suggestion.

[Randall]

I hate it when they borrow from their 401s. But it's usually too late by the time they see me.

[jmallard]

Both taxpayers are 43 years old and they both got laid off from work. Worked at the same place.

To test the software, I changed the distribution code to a "1" on both 1099Rs. Program auto opened a CA 3805 and added penalty. Auto added a penalty to the Fed return, but did not warn me to open a form 5329. I opened a 5329 at it was already complete with the penalty added.

Changed the distribution codes back to "L" on both 1099Rs and the penalties were removed.

Jerry

[jmallard]

Did you fill int he taxable income box 2? I had an IRA this year that I failed to put the amount in that box since it wasn't in the box on the 1099R, and even though the amount showed up on page 1, the penalty did not automatically compute until I filled in box 2.

Just a suggestion.

Thanks for suggestion. Yes, box 2 was filled in on both forms and I entered the info on the input sheets.

Jerry