Federal taxes taken out of a rollover

[lmcoulter]

My husband had a rollover retirement account that he forgot about.  Merrill Lynch closed the account and took out $10K+ of federal taxes and then sent us the remaining balance.  When we received the check, we sent it back to Merrill Lynch and had them roll it over.  Our 1099-R says 7 in box 7 that it was a regular distribution.  But we did rollover the remaining funds.  Do I change box 7 in Turbo Tax to G - direct rollover?  That seems to work but will it trigger an audit since it doesn't match the 1099-R?  Is there another way that I should be reporting this?  Thank you!

[VolvoGirl]

What was it from and what did you roll it over to?   Was it a 401K he rolled over  to a IRA?  No do not change the code 7 to G.  It wasn’t a direct rollover.

After you enter the 1099R it will ask you some follow up questions.

Pick I moved it to another retirement account even if you put it back into the same account.

Then choose - I did a combination of rolling over, converting or cashing out the money.  That will open up to put in the amount you rolled over.  Only put the actual amount that went into the new account, not the full amount.    

If they took withholding out you needed to put the full gross amount (before tax withholding) into the IRA.   If you didn’t replace the withholding with your own money then the withholding became a taxable distribution and may have the 10% Early Withdrawal Penalty.  

[lmcoulter]

Thank you so much for the reply!  I did what you suggested.  They shut the account down in August 2024.  Can I still replace the withheld amount, so it does not become a taxable event?  I didn't know to do that at the time.  Or is it too late?  

[VolvoGirl]

Sorry too late.  You had 60 days to put it into the new account.  

[lmcoulter]

Thank you!  How can I find out if I had to pay the 10% penalty?  Is there somewhere on my tax return that I can look?

[SharonD007 · Accepted solution]

TurboTax calculates the early withdrawal penalty, which will be reported on line 8 of your Schedule 2.

To preview your Form 1040, (including the government worksheets) before, you file, refer to the TurboTax article How do I preview my TurboTax Online return before filing?

You will have to pay for TurboTax Online or register if using the free product.

Refer to the TurboTax Help article How do I preview my return in the TurboTax Desktop software?

[VolvoGirl · Accepted solution]

Oh I should have said before.   The 10% Early Withdrawal Penalty is if you are under 59 1/2.  

[lmcoulter]

Thank you for answering my question.  I looked at schedule 2 and line 8 was blank.  Does that mean I did not get charged a penalty?  Is a penalty a given?  Or in some cases, it is not?  I'm happy I was not charged a penalty but just wondering why not?

[VolvoGirl]

The 10% Early Withdrawal Penalty is only if you are under 59 1/2.

[lmcoulter]

Thank you so much.  My husband is 64 so that explains why I don't see it.  Yay for small favors!