1099-R for 2010

[SunTaxMan]

Taxpayer is disabled because of auto accident. My question involves premature total distributions from employer sponsored retirement plans BECAUSE of the disability. Payments are not "disability" payments, but are distributions from normal, regular retirement plan, requested BECAUSE of the disability.

Payer has coded 1099-R as Distribution code 1, no known exception. I think code should be 3, Disability. Am I mistaken? Code 1 generates 10% penalty. I think code should be 3, so as to NOT have 10% penalty (taxpayer is under 59 1/2 years old.)

Resolution - what I am thinking is either:

1. Contact payer and ask that 1099s re reissued with code 3 instead of code 1, OR

2. Report on tax return as code 3 and include explanation and documentation to support disabled status.

Thanks for thoughts and direction.

[Lion EA]

The plan administrator does not have proof of disability, so codes the 1099-R 1. You include Form 5329 to claim an exception from the 10% penalty by using code 03 on line 2. Obviously, have your client keep proof of his disability in his files.

[thewizardof]

Also contact payer so all future years will show correct distribution code.

[jainen]

>>disabled because of auto accident<<

For purposes of early distribution, disability is determined by what will happen in the future, not what caused it. I would guess the plan administrator would not change the code unless you provide proof of a Social Security determination.