1099-R Code 8 Subject to penalty?
Taxpayer is under age 59 1-2 and currently employed by a city. He received a 2016 Form 1099-R from the city retirement system with a distribution code 8. They reported the same amounts in boxes 1 Gross Distribution and 2a Taxable Amount. They added the word “Refund” underneath the recipient’s name on the Form 1099-R. We included the amount as wages on the 2016 Form 1040.
Would this distribution be subject to any penalty on a Form 5329?
Permalink Submitted by Alan - IRA critic on Mon, 2017-10-16 16:57
There would not be a penalty and Form 5329 does not apply. If the IRA box is checked on the 1099R, a code 8 produces a 10% penalty on the amount in 2a. But this taxpayer is receiving a corrective distribution from an employer plan, the IRA box will not be checked and no penalty would apply. Another point to remember is that a penalty will never apply to income reported on line 7 wages.