Publication 575 - Pension And Annuity Income - 2004 Page 28
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36annuity is otherwise subject to the 10% additional tax, a
Special Additional Taxes
5% rate may apply instead. A 5% rate applies to distribu-
tions under a written election providing a specific schedule
for the distribution of your interest in the contract if, as of
To discourage the use of pension funds for purposes other
March 1, 1986, you had begun receiving payments under
than normal retirement, the law imposes additional taxes
the election. On line 4 of Form 5329, multiply by 5%
on early distributions of those funds and on failures to
instead of 10%. Attach an explanation to your return.
withdraw the funds timely. Ordinarily, you will not be sub-
ject to these taxes if you roll over all early distributions you
Exceptions to tax. Certain early distributions are ex-
receive, as explained earlier, and begin drawing out the
cepted from the early distribution tax. If the payer knows
funds at a normal retirement age, in reasonable amounts
that an exception applies to your early distribution, distribu-
over your life expectancy. These special additional taxes
tion code “2,” “3,” or “4” should be shown in box 7 of your
are the taxes on:
Form 1099-R and you do not have to report the distribution
•
on Form 5329. If an exception applies but distribution code
Early distributions, and
“1” (early distribution, no known exception) is shown in box
•
Excess accumulation (not receiving minimum distri-
7, you must file Form 5329. Enter the taxable amount of the
butions).
distribution shown in box 2a of your Form 1099-R on line 1
of Form 5329. On line 2, enter the amount that can be
These taxes are discussed in the following sections.
excluded and the exception number shown in the Form
If you must pay either of these taxes, report them on
5329 instructions.
Form 5329. However, you do not have to file Form 5329 if
If distribution code “1” is incorrectly shown on
you owe only the tax on early distributions and your Form
TIP
your Form 1099-R for a distribution received
1099-R correctly shows a “1” in box 7. Instead, enter 10%
when you were age 59
1
/
or older, include that
of the taxable part of the distribution on Form 1040, line 59
2
distribution on Form 5329. Enter exception number “11” on
and write “No” under the heading “Other Taxes” to the left
line 2.
of line 59.
Even if you do not owe any of these taxes, you may
General exceptions. The tax does not apply to distri-
have to complete Form 5329 and attach it to your Form
butions that are:
1040. This applies if you meet an exception to the tax on
•
early distributions but box 7 of your Form 1099-R does not
Made as part of a series of substantially equal peri-
indicate an exception.
odic payments (made at least annually) for your life
(or life expectancy) or the joint lives (or joint life
expectancies) of you and your designated benefi-
Tax on Early Distributions
ciary (if from a qualified retirement plan, the pay-
ments must begin after separation from service).
Most distributions (both periodic and nonperiodic) from
See Substantially equal periodic payments, later,
qualified retirement plans and nonqualified annuity con-
•
tracts made to you before you reach age 59
1
/
are subject
2
Made because you are totally and permanently dis-
to an additional tax of 10%. This tax applies to the part of
abled, or
the distribution that you must include in gross income. It
•
Made on or after the death of the plan participant or
does not apply to any part of a distribution that is tax free,
contract holder.
such as amounts that represent a return of your cost or that
were rolled over to another retirement plan. It also does not
Additional exceptions for qualified retirement plans.
apply to corrective distributions of excess deferrals, ex-
The tax does not apply to distributions that are:
cess contributions, or excess aggregate contributions (dis-
•
cussed earlier under Taxation of Nonperiodic Payments).
From a qualified retirement plan (other than an IRA)
For this purpose, a qualified retirement plan is:
after your separation from service in or after the year
you reached age 55,
•
A qualified employee plan (including a qualified cash
•
or deferred arrangement (CODA) under Internal
From a qualified retirement plan (other than an IRA)
Revenue Code section 401(k)),
to an alternate payee under a qualified domestic
relations order,
•
A qualified employee annuity plan,
•
From a qualified retirement plan to the extent you
•
A tax-sheltered annuity plan (403(b) plan), or
have deductible medical expenses (medical ex-
•
An eligible state or local government section 457
penses that exceed 7.5% of your adjusted gross
deferred compensation plan (to the extent that any
income), whether or not you itemize your deductions
distribution is attributable to amounts the plan re-
for the year,
ceived in a direct transfer or rollover from one of the
•
From an employer plan under a written election that
other plans listed here).
provides a specific schedule for distribution of your
entire interest if, as of March 1, 1986, you had sepa-
5% rate on certain early distributions from deferred
rated from service and had begun receiving pay-
annuity contracts. If an early withdrawal from a deferred
ments under the election,
Page 28
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