Form 5329

[Christian]

I have entered exception 2 on line 2 of Form 5329 on a client's return. On Form 1040 no additional tax is shown but oddly the penalty is still shown on line 5 of the Form 5329. Has anyone else encountered this or is this correct. You would think the penalty amount would disappear from the Form 5329.

[kathyc2]

I don't think you meant line 5 on 5329 as that is for ABLE accounts.  If the amount was for periodic payments over lifetime, code 2 should have been in box 7 of 1099R and 5329 is not needed.  If box 7 is not code 2 but client is telling you it's part of distributions over a lifetime, I'd have them to have issuing company send a corrected 1099R.

[Christian]

Oops I should have said line 4. As stated I entered 2 on the exception line. I see my error. You enter the exception in one screen and then need to toggle to a second one to enter the excepted amount. Like you I usually see the number 2 in the code field on the 1099-R but this particular company simply will not do that and invariably puts 1 in box 7.