Code 1 vs. code 2

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L1: Code 1 vs. code 2Hi: I know you’ve probably answered this question a million times, but unfortunately, I was not able to find the answer in the search. When submitting my end of year forms to my accountant what code should my custodian have placed on the form. Code 1 or Code 2. And would you please educate me on the difference between the two? Thanks a mill..2011-02-11 19:59, By: Rosa, IP: []
L2: Code 1 vs. code 2It depends on your situation. But it really doesn’t matter what they coded your 1099-R. If it is not correct, then your accountant can just prepare a form 5329 to recode it properly to waive the 10% penalty for early distributions, which is much easier than trying to get the very large custodian to reissue the 1099-R correctly. If they just re-issue a new one with the other code, the IRS will have received 2 forms, and be looking for twice as much income to be reported. The difference between the codes just affects the waiver of the 10% pwnalty. The taxation of the distribution is the same.2011-02-11 20:09, By: dlzallestaxes, IP: []

L2: Code 1 vs. code 2The instructions for IRS Form 1099 can be found here… explanation of Code ‘1’ and Code ‘2’ can be found on page 12 & 13. If you don’thave a code of 5329 and you are entitled to the exemption, file form 5329.2011-02-11 20:12, By: Gfw, IP: []

L3: Code 1 vs. code 2To narrow this down, I will assume that you are referring to an active 72t plan that you have and that your distribution was correct and valid.Under those presumptions, most custodians will still issue a Code 1 if you are under 59.5. If you get a Code 1, a Form 5329 should be completed showing the exception on line 2 of “02”. If you get a Code 7 because you are over 59.5, leave it alone.If you get a Code 2, be grateful because most custodians are not providing this as they do not want the responsibility of vetting your plan. Although a 5329 requirement is now normal and not a red flag, the Code 2 direct from the custodian is better because the IRS considers 1099R issuers more accurate and competent than a taxpayer altered coding.2011-02-11 21:26, By: Alan S., IP: []

L4: Code 1 vs. code 2From what we’ve seen posted on this site, I think that the IRS is misguided if it thinks that custodians understand SEPP 72-T plans, and the related regulations.
Also, 5329 forms prepared by paid practitioners would almost never be questioned by IRS, and even those prepared by taxpayers using computer prepared tax returns would be rarely questioned.2011-02-11 21:46, By: dlzallestaxes, IP: []

L5: Code 1 vs. code 2Thank you all so very much for your quick responses and assistance. I am 54 years young and I believe I am now clear on what needs to be done. It’s just a matter of having my accountant submit a 5329 changing the code from “1” to “2”. Again, thanks a mill and have a wonderful weekend… 2011-02-12 18:35, By: Rosa, IP: []

L6: Code 1 vs. code 2He can’t just show “2”.The 5329 requires a two digit code and the SEPP exception happens to be “02”. That is the entry that should be made on the 5329. His software will probably take care of it, but just is case………2011-02-13 01:06, By: Alan S., IP: []

L7: Code 1 vs. code 2To explain, the codes on the 1099-R are different from those on the 5329, usually. The 1099-R codes are single digits and letters. The 5329 codes are 2-digit numbers.2011-02-13 04:26, By: dlzallestaxes, IP: []

L8: Code 1 vs. code 2Great! I will have my accountant make the change on the 5329 to 02. If it’s a simple as that, I’m VERY happy!! Thanks again.2011-02-13 19:15, By: rosa, IP: []

L9: Code 1 vs. code 2Hello my friends. I took the liberty of downloading form 5329 so that I may sit with my accountant and explain where the changes need to be made, but I don’t see where I would indicate that the code should be changed from “1” to “02”. Any and all information/assistance would be greatly appreciated.2011-02-14 00:24, By: Rosa, IP: []

L10: Code 1 vs. code 2Use the Resources/Links option in the left menu…. on the link for the 5329 INSTRUCTIONS and look on page3.2011-02-14 00:28, By: Gfw, IP: []

L11: Code 1 vs. code 2Found it!!! Thank you so much for the link. I know my accountant should know this stuff, but if my custodian isn’t totally clear, then I guess I could allow my accountant to be a little in the dark with regard to 72T also. Thank you for keeping me OUT of the dark! : ) Have a wonderful Valentine’s Day to all !2011-02-14 14:20, By: Rosa, IP: []