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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Military Law
Satisfied Customers: 111537
Experience:  JA Mentor -Attorney Labor/employment, corporate, sports law, admiralty/maritime and civil rights law
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IRS trying to charge 10% penalty on Military Retirement

Customer Question

IRS trying to charge 10% penalty on Military Retirement (1099R), even though it is clearly coded as a 7 (normal distribution), because retired member is under age 591/2. This is regular military retirement, not a tsp withdrawal. Have provided IRS with what I could find on why it is not subject to the 10% penalty. Have never had this issue before, just seem to have a stubborn agent who does not know the law working this case. Can you provide any references or rulings proving regular military retirement is NOT an early distribution no
matter what the age. The fact that it has code 7 on the 1099R does not seem to be enough for this agent. Thank you, Martha
Submitted: 1 month ago.
Category: Military Law
Expert:  Law Educator, Esq. replied 1 month ago.
Thank you for your question. I look forward to working with you to provide you the information you are seeking for educational purposes only.
Under present law, a taxpayer who receives a distribution from a qualified retirement plan prior to age 59½, death, or disability generally is subject to a 10-percent early withdrawal tax on the amount includible in income, unless an exception to the tax applies. Among other exceptions, the early distribution tax does not apply to distributions made to an employee who separates from service after age 55, or to distributions that are part of a series of substantially equal periodic payments made for the life (or life expectancy) of the employee or the joint lives (or life expectancies) of the employee and his or her beneficiary.
There is no specific exception for military pensions being exempt, the above provisions under IRC 72(t) apply. See also: http://www.journalofaccountancy.com/issues/2005/aug/withdrawwithoutpenalty.html
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Customer: replied 1 month ago.
I am disappointed as I already had the IRC (t) codes as, explained in my email. By the way, the IRS instructions for Forms 1099R and 5498 specifically state on page 2 under Military retirement annuities, "Use Code 7 in box 7 for reporting military pensions or survivor benefit annuities" which would lead one to believe there has been specific rulings on the subject.
Expert:  Law Educator, Esq. replied 1 month ago.
Thank you for your reply.
I understand, but we cannot change what the tax code says and that it does not specify that your military pension is exempt, which is the issue you are having. You may be disappointed, but that is the laws and what IRC 72(t) says and that is something I cannot fix for you, if you do not meet the criteria of being at least 55 at the time you retired you would not meet the exemption, I am sorry that I cannot change that and give you something different than what the law says.

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