![]() ![]() The distribution amount shown should equal the IRA’s fair market value on the first day of the tax year that the prohibited transaction occurred.Ĭode 5 should not be used with any other codes. This tells the IRS that the account is no longer an IRA. Only use Code 5, Prohibited transaction, when an IRA prohibited transaction occurred. ![]() ![]() Financial organizations may ask IRA owners for a copy of the signed Physician’s Statement or an equivalent statement signed by a physician before using code 3.Īlways use code 4, Death, when distributions are made to a beneficiary (including an estate or trust) after a Traditional or SIMPLE IRA owner’s or plan participant’s death.Ĭode 4 may be used with code 8, B, D, G, H, K, L, M, or P. The Schedule R instructions include a Physician’s Statement that may be used to verify that the individual is permanently and totally disabled. Some disabled individuals file IRS Schedule R, Credit for the Elderly or the Disabled, with their tax return. If no proof is provided, the financial organization should enter code 1 in Box 7 (the individual can file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, to still use the disability exception).Īn individual claiming disability to avoid the early distribution penalty tax must qualify as disabled within the meaning of Internal Revenue Code Section (IRC Sec.) 72(m)(7). Verification is not required by the IRS, but is highly recommended. Use code 3, Disability, when proof of disability is provided at the time of distribution. It is a distribution from a governmental defined benefit plan to a public safety employee after separation from service, in or after the year the employee reached age 50.Ĭode 2 may be used with codes 8, B, D, K, L, M, or P. It is a governmental 457(b) plan distribution that is not subject to the 10% early distribution penalty tax or The plan participant qualifies for a penalty tax exception that does not require using codes 1, 3, or 4 ![]() The distribution was a permissible withdrawal under an eligible automatic contribution arrangement The distribution was part of a series of substantially equal periodic payments The plan participant separated from service during or after the year he or she attained age 55 The distribution was the result of an IRS levy The individual qualifies for a penalty tax exception that doesn’t require using codes 1, 3, or 4. The distribution was part of a series of substantially equal periodic payments or The distribution was a result of an IRS levy The IRA owner directly converted the assets to a Roth IRA Use code 2 for a Traditional or SIMPLE IRA distribution when Code 2Ĭode 2, Early distribution, exception applies, lets the IRS know that the individual is under age 59½ but that he or she qualifies for certain exceptions. Use Code 1 if the individual modified a series of substantially equal periodic payments before the end of the five-year period that began with the first payment, even if he or she is age 59½ or older.Ĭode 1 may be used with codes 8, B, D, K, L, M, or P. Use even if the individual is withdrawing the money for one of the following penalty tax exceptions: unreimbursed medical expenses that exceed 7.5 percent of adjusted gross income, health insurance following unemployment, qualified higher education expenses, qualified first-time homebuyer expenses, qualified reservist distributions, or qualified birth or adoption distributions. Use Code 1, Early distribution, no known exception, for Traditional and SIMPLE IRAs and QRPs only if the individual is not age 59½ or older and codes 2, 3, and 4 do not apply. ![]()
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