APRS recently updated its IRS reporting process for members who begin receiving an annuity before age 59 ½. Under IRS guidance, certain early distributions from a qualified retirement plan are not subject to the additional 10% early‑withdrawal tax. In these situations, the IRS instructs payors to use Code 2 – Early Distribution, Exception Applies on Form 1099‑R.
According to IRS Instructions for Form 1099‑R (see page 18 of the IRS document https://www.irs.gov/pub/irs-pdf/i1099r.pdf), Code 2 indicates that the distribution is early, but an exception to the 10% additional tax applies. For APRS members, this means:
- If you begin receiving your APRS annuity before age 59 ½, your 1099‑R will reflect Code 2.
- Members under age 59½ are not subject to the 10% early‑distribution penalty, and the coding on the 1099‑R reflects that exception because Code 2 says it is an Early distribution, exception applies.
- Once you reach age 59 ½ or older, your 1099‑R will reflect Code 7 – Normal Distribution.
This reporting change does not affect the amount of your annuity or how APRS calculates your benefit. It simply ensures that the tax reporting on your 1099‑R aligns with IRS requirements.
Please note that APRS staff are prohibited from providing tax advice. If members have questions about how this affects their individual tax situation, they should consult a qualified tax professional.