401k rollover to taxable account by mistake

[evansdc1]

I initiated a small direct rollover from a 401k to a brokerage.  The account I set up at the brokerage was a taxable account, not a rollover IRA account as intended (my mistake). The direct transfer went to the taxable brokerage account, but I didn't catch it.  I've received a 1099-R and the 401k company says the code G is correct because they didn't withhold taxes.  They won't re-issue the 1099-R.

Should I file my taxes as normal, wait until they are accepted, then make an amendment with 1040-X?  If so, should I submit a substitute Form 1099-R (Form 4852) showing the correct taxable amount in box 2a? I'm planning to simply pay the taxes on the rollover. I'm over 59 1/2.

Thanks!

[ThomasM125]

You coud change the code in box 7 to a "7" for normal distribution, which is the way it should have been listed. However, that option may void your TurboTax accuracy guarantee since you will be altering a tax form entry. 

You could skip the form 1099-R normal entry and enter a subsitute Form 1099-R to report the correct code in box 7. That would be the most technically correct way to do it. You don't need to do an amended return, you can choose either of these options on your current tax return filing.

This is how you enter a substitute form 1099-R in TurboTax:

1. Choose the Federal option on your left menu bar
2. Choose Wages & Income
3. Choose the Retirement Plans and Social Security menu option 
4. Choose IRA, 401(k), Pension Plan Withdrawals(1099-R)
5. Choose the enter 1099-R option
6. Choose Change how I enter my form
7. Choose Type it in myself
8. Choose Financial institution or other provider (1099-R)
9. Enter in as much information as you can regarding the pension income 
10. Work through that section until you see Do any of these situations apply to you?
11. Choose I need to file a substitute 1099-R
12. Complete the information requested

[dmertz]

By being deposited into a nonqualified account, the distribution defaulted to being a normal distribution despite the code G in box 7 of the Form 1099-R.  If you corrected the error by completing an indirect rollover of those funds within 60 days, there is no need to correct the Form 1099-R.  Otherwise, as ThomasM125 said, the proper thing to do would be to enter a substitute Form 1099-R showing code 7 in box 7 and the appropriate taxable amount in box 2a (the same as the amount in box 1 unless the distribution included basis in after-tax contributions, which is probably not the case).  Your explanation statement would indicate that this failed to be a direct rollover because the receiving account was not eligible to receive a rollover and therefore became a taxable distribution.