401 k withdrawal

[carlyle49]

I left a company in early 2016, I withdrew my money from the 401k. I paid the 20% tax on the withdrawal, I later moved the remaining funds to a roth 401k. How is this transaction treated for tax purposes. 50k initial value, 20 % tax on withdrawal equals10k. Sense I redeposited the balance 40k do I just report the 10k as income.

[SweetieJean]

Was the original plan a Trad IRA or a Roth IRA?

[macuser_22]

"I  later moved the remaining funds to a roth 401k..."    What do you mean by "remaining funds".   You cannot take a 401(k) distribution from one company and roll it into a 401(k) Roth in another company - that is not permitted and I doubt the company would allow it.

Do you mean that you rolled it into an IRA and then later converted the IRA to a Roth IRA?

[carlyle49]

I did not roll it over, I withdrew the original 401k and paid the 20 % tax, i then put the remaining funds in a a roth 401k

[carlyle49]

I id not roll it over, I opened a personal /private roth 40ik and deposited the remaining funds in it.

[macuser_22]

There is no such thing as a "private Roth 401(k)".   401(K) plans are employer plans, not private plans.    It sounds like you opened an IRA with a bank or financial institution which would not be a 401(k) plan, but simply a Roth IRA.  

What code is in box 7 on the 1099-R that you received?

[carlyle49]

You are correct it is a Roth IRA. question is what do I report as income, sense the remaining funds were deposited in a approved retirement vehicle. Thanks

[macuser_22]

Essentially what you did was a rollover/conversion which *must* have been done within 60 days of the day of the distribution. If more than 60 days, it would be an excessive contribution.    

Since 20% was withheld I assume that the distribution was payable to you and there was a code 1 or 7 in box 7 and not code G.

[carlyle49]

yes and it was done within 60 days. Correct. What do I report? I assume the 20% is reportable on full amount, but I will only need to report the funds I did not convert, correct?

[macuser_22]

A 401(k) distribution is fully taxable, including the part use to pay the tax since it was part of the distribution.   A rollover to a Traditional IRA would not be taxable since both the 401(k) and the Traditional IRA consist of before-tax money.  Since a Roth is after-tax money, the tax must be paid. 

The entire 50K will be taxed at your marginal tax rate.   The $10K withholding (in box 4 on the 1099-R) will be added to all other withholding on line 64 on the 1040 form.   Depending on your tax bracket the 20% withhold may or may not be enough to pay the tax.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

If this was a IRA rollover or conversion, answer the question that you moved the money to another retirement account (can be the same account). The screen will open up with choices of where it was moved.

It will show as income on the summary screen which shows gross income, not taxable income.

The income will be reported on line 15a on the 1040 form.

The taxable amount will go on line 15b.

[SonShine8]

I have a similar situation. When I told my bank that I wanted to redeposit the funds into my Roth IRA, they transferred the $ from my checking acct into a traditional IRA, then did a conversion to a Roth. They explained that it was cleaner that way. Because the withdrawal from the 401k was in late December, the conversion did not take place in January of 2021. I only have a 1099-R from the 401k, but no forms from the bank for the deposit into the traditional IRA or the transfer into the Roth. Should I be getting any forms from the bank? Where would I find the Roth conversion in TT?

Thank you!

[ColeenD3]

For 2020, all you have to worry about is the rollover. The conversion took place in 2021.

Indicate that you rolled the money over into another retirement account.

[SonShine8]

Thank you, ColeenD3! What forms should I be getting from the bank when I file my 2021 taxes to show it was a deposit to the trad IRA, then a conversion to a Roth?

[DanaB27]

You will report the rollover into the traditional IRA on your 2020 tax return as ColeenD3 explained above. You do not need a form to confirm that you put it into the traditional IRA.

On you 2021 tax return you will enter the 2021 1099-R that you will get in 2022 for the conversion.