A retired police officer rolled his 457 into an IRA, I think.

[utah-arizona-taxlady]

His retirement advisors told him he would not have to pay the penalty since he is age 50 and retired from the police force and it was a 457 plan.  BUT the 1099-R forms says it came from an IRA so I assume it was rolled at some point in time.  And they coded it with a distribution code 1 and on the form 5929 exception A is for plans that are not IRAs.    Any suggestions?  I was thinking of telling him to ask for a corrected 1099-R with a code 2 instead of a 1?

[IRonMaN · Accepted solution]

Go back to those retirement "experts" and get some more details.

[qbteachmt]

Ask him for the 5498 that is Money In to the retirement account.

You don't want to "I think" this. You want the supporting evidence.

[utah-arizona-taxlady]

I may have that from a previous year.  I will check.  Good idea. 

[utah-arizona-taxlady]

Yes, they want to call the "advisor" and see what he says.  I told them to conference call me.

[qbteachmt]

I find all of this confusing. If the 1099-R states a distribution from an IRA, perhaps that has nothing to do with the 457? Or, you are not clarifying that this is sequential, and this 1099-R is from the account where the 457 was rolled into (which means the 457 is no longer part of this discussion)? And you don't want a 5498 from "a" year. I thought you needed the 5498 for the 457 rollover year, because you only "think" it went to an IRA?

This is becoming a bit hard to follow.

[utah-arizona-taxlady]

I wasn't sure that it was the 457 that was rolled into the IRA so I used the I think.  I'm sorry about that.  I did finally hear from my clients and yes, it was the 457 that was rolled into an IRA a year ago when he left the Police force at the age of 49.  They were told by their "advisor" when they took out the money that there would be no penalty since the money was from the 457.  But it was coded with a distribution code 1 from the IRA.  I think it is confusing too.  They are going to call their adverser this week and see what he has to say. 

[BobKamman]

The advisers wanted to get control of the money so they could earn commissions on it.  He lost the 457 exception when he rolled it over to the IRA, but he gained a FINRA case if he can prove it was done on their advice.

Incidentally, a client who left her funds in a 457 (Nationwide) had to fight them two years in a row to get the code changed from 1 to 2.  The company told her to use the Form 5329.  I told them where to put it.