1099 wrong
8 -2009 received letter from Merrill Lynch stating that my 72t would terminate at the end September. I had satisfied the 5 years (started August 2004) and would turn 59 1/2 in October.
I then did a direct transfer which my new custodian initiated in November 2009
Received 2 1099’s (code 1 and 7) for year 2009. When I called ML to question the code 1 this was the response.
Merill lynch saying they have a disclosure that reads:
if you transfer your primary or any of your related SEPP account from ML to another financial institution for a year in which
you are scheduled to or already have received SEPP, ML will not report the exemption from the early distribution penalty
Ml also said that the letter that I received in August should substantiate that I did have Sepp through end of September 2009.
So, I’m going to file a 5329 with exemption code 2. Should that be enough.
Permalink Submitted by Alan Spross on Tue, 2010-01-26 21:45
Yes, just use the 5329 to correct the 1 to an “02”. Most custodians no longer provide the exception coding for SEPP plan so the 5329 should not be any kind of red flag to the IRS.
That said, it strikes me a rather petty that a firm that normally would provide the exception coding would choose to change their tax reporting procedure simply because you transferred funds elsewhere AFTER the SEPP modification date. But a 5329 is cheaper than an exit fee.
Permalink Submitted by Marvin Rotenberg on Wed, 2010-01-27 18:43
What ML did is standard when a SEPP plan is transferred from one custodian to another. The old custodian has no way of knowing whether or not the schedule will be finished so they report the distributions for the year as being early with no exception. The account owner then files Form 5329 to correct the 1099-R reporting.
Marvin
Permalink Submitted by Alan Spross on Wed, 2010-01-27 19:47
But the SEPP was not tranferred. It was completed while with ML according to their own letter, so ML was well aware that the plan had been completed prior to the transfer, and whatever taxpayer does after the plan is completed is immaterial to the validity of the plan.