Form 1099-R Box 7 Distribution Code J

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We recently withdrew around $35,000 from our personal contributory IRA to purchase a new home. Current IRS tax law says that up to $10,000 can be withdrawn penalty free for first time home buyers. We still have to pay federal income tax on the ten grand, but do not have to pay the 10% early withdrawal penalty provided our IRA custodian properly codes box 7 on the 1099-R form.

Our IRA custodian, Charles Schwab, did not enter a code of J in Box 7. A code of J indicates the IRA early withdrawal will be used for a first time home purchase for you or a relative.

We use Turbo Tax and it will detect the code J in the 1099-R form and automatically generate form 5329 which will get you off the hook with respect to the 10% penalty for withdrawing before age 59 and 1/2.  We called Schwab and for some reason this year many 1099-R Forms were  marked 1 in box 7 which indicates a normal IRA. They are in the process of amending our erroneously coded 1099-R form which will save us 10% of $10,000 or $1000 on this years tax return.

1099-R code J

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6 comments on “Form 1099-R Box 7 Distribution Code JAdd yours →

  1. I believe you’re mistaken about the code J. You can get the $10,000 penalty free by making entry for that amount in the income section of Turbo program. It will ask you how you spent the money and as long as you indicate it was spent on home purchase, the 10% penalty will be wiped out!

    1. Noticed enrolled tax preparer agent Marilyn Cozzens put out self promoting add in newspaper encouraging readers to use her versus tax prep programs like Turbo.

      Cozzens of Roswell warns that software like turbo tax can be hacked. That’s never once happened to me. She uses software too which could be just as easily hacked.

      Humans make more mistakes than programs and typically will not give you inexpensive “peace of mind ” insurance like turbo.

      1. Just read that Rowsell,NM tax preparer, named Sylvia Franco, was charged with dozens of counts of racketeering and tax fraud. She prepared and submitted 28 fake tax returns for people all the way back to 2011! She was arrested and is now warming a hard bed at Chaves County Detention Center. She was arraigned before the honorable judge Halvorson.

        1. Sylvia Franco, accused of stealing $120,000 from the state of NM via tax fraud, had her cash only bond reduced from $25,000 to $2,500. This was negotiated by a scumbag attorney whose name was not released in RDR.

      2. Marilyn saved us a ton of money with IRS after my father passed away. There was some fighting among family members about who owned what with his estate and IRS taxed me for a lot of real estate and personal property that was not mine. She sorted through it all at reasonable fee and we were NEVER audited!

  2. Code J represents any early withdrawal prior to 5 years, i.e. where the 5-year holding period is not met. There are no exceptions. The earnings are taxable and a 10% penalty applies. Example: You purchase $5000 worth of Google stock in your Roth IRA. You try to sell it after only 4.5 years. You will get hit with a $500 penalty and have to pay income tax to boot.

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