Hello, longtime turbotax user here but first-time poster. My situation sounds similar to the thread here but I am not sure if it is exactly the same. Bear with me.
In summer 2022 we began consolidating some older retirement funds into 1 location. I moved some funds successfully from "V" into a new IRA with "E". My wife moved an old IRA with "T" to a new IRA with "E". It is my wife's IRA that I am writing.
Having never transferred an IRA to another entity before this summer, we made sure to communicate with both "E" and "T" about what was needed. She went to bank "T" a week prior and asked them what was needed. Then, we spoke with bank "E" to verify the details. We were instructed to go to "R", inform them of our intent to transfer to another IRA, and we would receive the full IRA amount as a check “made out to E for the benefit of my wife”, and would go literally across the street and hand it to "E" for deposit into her new IRA.
I recall us sitting there for some time as the "T" banker struggled to get the process correct. At some point the branch manager took over and got us the check in just a couple of minutes and we promptly brought it over to "E".
Fast forward to January 2023. I am tracking tax documents as they come in the mail. I noticed my wife’s paperwork, as described in the explanation above, seemed odd. Taxes were withheld from the transfer totaling 10%!
- Specifically, she received a 1099R with the full IRA amount in box 1, the same amount listed as taxable income in 2a.
- 2B shows both boxes checked (taxable amount not determined, total distribution)
- Federal tax withheld in box 4 is the 10%
- Box 7 says distribution code: 1 (total distribution, IRA box is checked) but it believe it should have been G like the IRA I successfully transferred myself.
I looked back at the receipts from the summer and noticed that yes, in fact, 10% of the value of the IRA was withheld (totaling about $1500). How we did not notice this then I do not know, other than this was a new process for us. And I am a dummy.
We met with the same branch manager the other day, and all he could tell was that the first banker to work with us initiated a withdrawal, not a transfer. When we actually completed the transfer with the branch manager’s help in July, the check was written as we intended, as an IRA to IRA transfer to "E", but because it was initially coded as a withdrawal the taxes were withheld anyway.
We are now a week since raising the concern with the branch manager, who says he is working to find a solution that “minimally impacts us”.
* Because it was processed incorrectly, is the value of the IRA transfer check counting against us as “income” for 2022?
* what is a possible solution to 1) recoup the missing 10% and 2) correct the tax form prior to me filing for this year?
This is compounded by the fact that we are trying to file our taxes quickly because our financial aid application for our children’s tuition (due next month) requires the latest tax filing, which I cannot do until this is resolved.
Again, thank you for your patience and anything you can offer to improve my understanding of the situation.
