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If you are under age 59-1/2 and taking penalty-free withdrawals from your IRA here's some "news you can use."

For the 2004 tax year, the IRS did away with "exception code 2" on Form 1099-R. The only code you'll see on Form 1099-R is exception code 1. See link:

http://www.irs.gov/instructions/i1099r/ar02.html#d0e220

You'll have to file IRS Form 5329 with your return to claim the exception for "substantially equal periodic payments" (SEPP) and escape the 10% penalty. Here's a link to form 5329 and instructions.

Instructions for Form 5329.
http://www.irs.gov/instructions/i5329/ch01.html

Form 5329
http://www.irs.gov/app/vita/content/basic/lesson07/images/5329.pdf

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The link for Form 5329 seems to be broken, here's a good one.

http://www.irs.gov/pub/irs-pdf/f5329.pdf

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Well that sucks! 2004 was my last year of SEPP. Why couldn't they have waited a year to make a change which doesn't make any sense anyway? Seems like just another way to hassle taxpayers.
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billjam writes,

Well that sucks! 2004 was my last year of SEPP. Why couldn't they have waited a year to make a change which doesn't make any sense anyway? Seems like just another way to hassle taxpayers.


It's really just a matter of checking a couple of boxes on Form 5329. Worrying about it is probably going to take more out of you than completing the form.

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