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.

TurboTax

File with experts
File your taxes
Experts at your fingertips

An expert helps with your taxes, or does them for you
TurboTax Expert Full Service

TurboTax Expert Assist

TurboTax Self-Employed
Prior year taxes
File myself
File myself
Do it yourself

We'll guide you step-by-step
TurboTax Do It Yourself

TurboTax Self-Employed

TurboTax Desktop
TurboTax Free

Activate your product

Prior year taxes
Business
Business
Business taxes

Get your T2 corporate return done right, your way
TurboTax Business

TurboTax Business Desktop
Tax situations
Tax situations
Tax situations

Find extra guidance for your big life moves
For investors

For 25 and younger

For self-employed

For new to Canada

For life changes
Resources
Resources
Resources

Explore tax tools, get tips, and read reviews
Personal income tax calculator

RRSP savings calculator

Learning hub

TurboTax support (FAQ)

TurboTax community
Pricing

Level 2

Question

Bank coded my IRA transfer as distribution, not transfer. Help!

Forum|Forum|3 years ago
February 13, 2023
26 replies
132 views

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.

user17750693608

Level 8

The 1099-R is correct. Only a trustee to trustee transfer gets code G. You have to manually indicate the rollover. As you proceed through the 1099-R interview, you will encounter a screen asking what you did with the distribution. Indicate that your rolled it over within 60 days.

You will get the withholding applied to your refund.

MarilynG

Level 15

Here's how to indicate that you rolled over your 1099-R distribution in TurboTax:

Search for 1099-R and select the Jump to link in the search results
Continue through the screens to import or enter your 1099-R form
When asked Tell us if you moved the money through a rollover or conversion select I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days) and select Continue
On the next screen, Did you roll over all of this (Box 1) to another retirement account? answer Yes, I rolled over to an IRA or other retirement account (or returned it to the same account) and select Continue

If taxes were withheld in box 4 of your form, they'll either be added to your refund or applied to your tax liability.

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

smolinskijjAuthor

Level 2

Hi @MarilynG ,

I have a question about this line in your answer:

"On the next screen, Did you roll over all of this (Box 1) to another retirement account? answer Yes, I rolled over to an IRA or other retirement account (or returned it to the same account) and select Continue "

What happened was they withheld 10%, so out of the original ~$15,000, only ~$13,500 was rolled over. To clarify, you say to still answer Yes? (I currently have it checked as "No, _____ rolled over less than $15,000".

Thank you for clarifying for a dumdum like me!

VolvoGirl

Level 15

When you deposited it in the new account did you add back in the $1500 10%? If not the 1,500 is a distribution and taxable and the 10% Early Withdrawal Penalty if she was not 59 1/2. So when it asks what you did with it only enter the actual amount put in the new account.

VolvoGirl

Level 15

The 10% tax withholding will be credited on line 25b with all your other withholding like from W2s.

dmertz

Level 15

"T" messed up and processed a distribution, not a trustee-to-trustee transfer despite what appears to have been a proper request to do a trustee-to-trustee transfer and having prepared the check appropriately (although it would have been more proper to have the check made out specifically to the receiving IRA).

If this had been done as a trustee-to-trustee transfer of a traditional IRA to another traditional IRA, no Form 1099-R should have been issued and no taxes should have been withheld. (Code G is never to be used for the movement of funds between IRAs.)

Because taxes were withheld, it would be difficult to treat get the reporting corrected to show that only the 10% withheld for taxes was the gross amount distributed. Of course this makes your wife subject to the one-rollover per 12-months limitation, so hopefully she rolled over no other IRA distributions in the one-year period ending on the date of this distribution and will not do so in the one year period beginning on the date of this distribution.

I would approach "E" (or any other IRA custodian, even back to "T" if they are willing to help correct theire mistake) to see if they will accept your wife's certification under IRS Rev. Proc. 2016-47 as modified by Rev. Proc. 2020-46 that rolling over the 10% withheld for taxes would qualify for a waiver of the 60-day rollover deadline due to financial-institution error and allow her to complete the rollover of the entire gross amount. That way the early-distribution penalty would be avoided and taxes would continue to be deferred on the amount that was withheld. Rolling over an amount equal to the tax withholding would still be a rollover of a single distribution and would not violate the one-rollover-per-12-months limitation.

Whatever the result with the Form 1099-R, you'll need to report whatever portion of gross amount that ultimately made it to the new IRA as having been rolled over.

With potentially serious mistakes like this, perhaps it is good that your wife has moved the IRA from "T".