1099-R distribution with indirect rollover

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My husband got 1099-R due to a 401K distribution that should not have happened. Financial company never contacted him on how to disperse his 401K when he left a company last year. They just cut him a check. So he took that check and did an in-direct rolled over into a retirement account through his new employer. Well with that disbursement tax of $180 was withheld. It seems that Turbotax is considering the $180 portion that was withheld as taxable and is taking another $18 as tax (10% penalty). Per Turbotax info we should have added $180 to the rollover, but financial company stated that we could not do that as it was not part of the disbursement check. So are we out the $180 tax withheld + $18 for tax penalty or is there a way around this issue? We never got the $180 as it went straight to the federal government. On 1099-R form box 1 and 2a is the same amount $899.54 and, box 4 $179.91, box 7 is 1 and the IRA box is not checked. $719.63 was the amount rolled over. Thanks

MinhT1Answer

Alumni - Intuit

The TurboTax program is correct. To be completely tax free, the indirect rollover must be for the gross amount.

As the indirect rollover was $180 short, the IRS considers that you have an early withdrawal of $180. This $180 is taxable and subject to the 10% penalty. Your $180 tax withheld is not lost. It counts as a tax credit toward your tax liability.

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MinhT1Answer

Alumni - Intuit

The TurboTax program is correct. To be completely tax free, the indirect rollover must be for the gross amount.

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tschindlerAuthor

Level 2

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

macuser_22

Alumni - Champ

@tschindler wrote:

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

The $180 should be in box 4 on the 1099-R and will be added to all other W-2 and 1099 withholding on line 17 of the 1040 form to offset any tax owed or add to your refund.

**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.**