Updated October 17, 2026. Quick answer: Exception code 02 on Form 5329 is for a series of substantially equal periodic payments, often called a 72t or SEPP. You enter the amount on line 2 with 02 beside it. Changing the payments later can bring a recapture tax, which is reported on line 4 with a written explanation.
What code 02 means
The instructions describe the exception this way: “Distributions made as part of a series of substantially equal periodic payments (made at least annually) for your life (or life expectancy) or the joint lives (or joint life expectancies) of you and your designated beneficiary”. For an employer plan, the same sentence adds “(if from an employer plan, payments must begin after separation from service)”. The instructions send you onward: “See Pub. 590-B for more information.”
The same exception for IRAs is stated in Publication 590-B: “payments over your life (or your life expectancy), or over the lives (or the joint life expectancies) of you and your beneficiary, without having to pay the 10% additional tax.” The mechanics of setting one up are on the 72t SEPP calculator page.
The three methods
Publication 590-B says “The IRS has provided three general methods of computing the annual distribution amounts for meeting the requirements for a series of substantially equal periodic payments”. It names them: “The three methods are generally referred to as the required minimum distribution method (RMD method), the fixed amortization method, and the fixed annuitization method.” Publication 575 describes the first as “Under this method, the resulting annual payment is redetermined for each year.” For the other two it says “the resulting annual payment is determined once for the first distribution year and remains the same amount for each succeeding year.” The caution about help: “The latter two methods may require professional assistance.”
A newer rule matters for annuities: “Distributions received as periodic payments on or after December 29, 2022, will not fail to be treated as substantially equal merely because they are received as an annuity.”
Changing the payments: the recapture tax
The exception can be lost. Publication 590-B says “You may have to pay a recapture tax if you modify (for reasons other than your death or disability) the annual amount distributed to be different from the annual amount determined under the distribution method that you initially established under the substantially equal periodic payment exception”. It then gives the window: “The recapture tax applies if you modify the series of payments (other than because of death or disability) before the later of these two dates:” the first is “The 5th anniversary of the date of the first distribution of the series”, and the second is “The date you reach age 59½.”
The amount is described as “the amount of the 10% additional tax that would have been imposed in prior years had the exception not applied in those prior years, plus interest for the deferral periods.” Two changes are not treated as a modification: “(a) if your account is completely depleted of all assets; or (b) if you make a one-time change to the RMD method from one of the other methods.” That change is also covered on the one time switch page, and the pitfalls are on the busting a 72t page.
How to claim it, and where recapture goes
For the ordinary case, enter the payments on line 2 with 02 beside the amount: “Enter on line 2 the amount that you can exclude.” “In the space provided, enter the applicable exception number”.
A recapture tax is reported in a different place. Publication 590-B says “Report the recapture tax (including the interest on the deferral periods) on line 4 of Form 5329. Attach an explanation to the form.” It also warns “Don’t write the explanation next to the line or enter any amount for the recapture on line 1 or 3 of the form.” Publication 575 says the same: “Report the recapture tax and interest on line 4 of Form 5329.”
Where it goes next
Line 2 is subtracted from line 1 to reach line 3, as the form says: “Amount subject to additional tax. Subtract line 2 from line 1”. Line 4 is “Additional tax. Enter 10% (0.10) of line 3.” and it carries to “Schedule 2 (Form 1040), line 8”. The line by line walk through is on Form 5329 lines 1 to 4. See Form 5329 explained for the rest of the form.
Edition and line numbers
This page reads the 2025 Form 5329 and its 2025 instructions, along with the 2025-returns editions of the two Publications it cites, the current files irs.gov served on 2026-10-17. They are the forms for the tax year 2025 return, filed in 2026. Check the tax year printed on the form you are filling in and use the line numbers and exception numbers on that year’s form, because a different year’s form can number or word its lines and exceptions differently.
Common mistakes
- Changing the payment amount mid series without checking the rule. Publication 590-B says “You may have to pay a recapture tax if you modify” the annual amount, with only the listed exceptions.
- Putting a recapture amount on line 1 or 3. Publication 590-B says “Don’t write the explanation next to the line or enter any amount for the recapture on line 1 or 3 of the form.”
- Starting employer plan payments before leaving the job. The instructions say “if from an employer plan, payments must begin after separation from service”
Related: 72t SEPP calculator, 72t five year rule, Busting a 72t SEPP, and 72t one time switch to the RMD method.
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Answer againSources
- Instructions for Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/i5329.pdf
- Form 5329 (2025): https://www.irs.gov/pub/irs-pdf/f5329.pdf
- Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p590b.pdf
- Publication 575, Pension and Annuity Income (for 2025 returns): https://www.irs.gov/pub/irs-pdf/p575.pdf
Read from the IRS documents linked above on October 17, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the account provider or the IRS is the right place to confirm anything consequential.