When SEPP rules are broken, how do you report the 10% penalty and interest for the previous years SEPP payments were received and reported on 1099-R with Code 2?

[qbteachmt]

Investopedia has become my favorite article provider.

Form 5329

Here:

https://www.investopedia.com/articles/retirement/04/021804.asp

[robhen]

So, would you go back and complete a 5329 for each of the five years involved in the SEPP?

[qbteachmt]

All years of the SEPP are now violated.

"Prior tax years. If you are filing Form 5329 for a prior year, you must use the prior year's version of the form. If you don’t have any other changes and haven’t previously filed a federal income tax return for the prior year, file the prior year's version of Form 5329 by itself (discussed earlier). If you have other changes, file Form 5329 for the prior year with Form 1040-X, Amended U.S. Individual Income Tax Return."

From: https://www.irs.gov/pub/irs-pdf/i5329.pdf

Out of curiosity, would you want to share a generic description of what went wrong?

[robhen]

Financial advisor told my client to stop SEPP payments at the end of 5 years but the client was not yet 59 1/2.  The entire SEPP is now subject to the 10% early withdrawal penalty and interest.  His 2020 1099-R shows Code 1.  The first 4 years were filed with a 1099-R with Code 2.

[qbteachmt]

There is no way to characterize the 2020 so that it complies for SEPP? The distribution code on the 1099-R doesn't define the treatment of the distribution.

If nothing else works, at the least, you should confirm if the 2020 distribution qualifies as covid distribution, so that there is no penalty for it.

Good luck.