@Trabia78 wrote:
2. Fidelity took the 20% taxes out of the withdrawal and sent it to the IRS.
3. Because Fidelity took 20% out for taxes, we could not rollover all of the 401K money to the IRA. We rolled over the entire amount minus 20% for taxes.
The 20% withholding is part of your distribution. If you did not also rollover that 20% by replacing it with other funds (which you are allowed to do) then the 20% will remain as a taxable distribution and WILL add to your AGI as it is required to do. If replaces with other funds then the 20% withholding is applied to all other withholding for 2020 and will be part of your refund - so you get that money back.
If you did not replace the tax withheld with other funds that that 20% will be a taxable distribution because it was sent to the IRS and not rolled over.
If you do not report it properly as taxable income on line 4b on the 1040 then the IRS WILL bill you for the missing tax in about a year and add interest charges starting on April 15 and increasing each month until paid.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
