Form 1099-R, Box 1 Gross Distribution - 401K withdrawal

[sbrewer840]

I received my 1099-R for making a 401k withdrawl from my former employer. The amount in box 1, however is not the amount I actually received when I got the check ($25,000). The amount reported in box 1, is the amount with the 20% tax I already paid ($31,250). Turbo tax definition of gross distribution on form 1099-R, box 1, says "This is the total amount of the distribution BEFORE income tax and other deductions are withheld. 

Given that information, is the amount withdrawn on my 1099-R incorrect? Should it include the taxes I already paid?

Thanks.

[RBBrittain · Accepted solution]

The 1099-R you received is correct.

Contrary to common assumptions, the 20% is a withholding tax just like on a W-2 (or a 1099-R for pensions); the correct Box 1 amount includes the tax that was withheld.  (That's what the language quoted in the OP actually says; it's the amount before the tax was withheld, i.e., $31,250.)  You will be taxed on the full $31,250, less any rollovers; the 20% withholding ($6,250) will be credited against your income tax due just like W-2 or other withholding.

If you rolled over only the $25,000, you will owe tax (plus 10% penalty if applicable) on the $6,250 because that amount was paid out but not rolled over.  That is why "direct rollovers" (i.e., 401(k) provider cuts check directly to the provider of your IRA or other plan), though more complicated, are strongly preferred:  If the 401(k) sends you the check they must withhold 20%, which you must make up from other funds to avoid tax & possible penalties on the 20%.  (That should have been explained to you in a "special tax notice" from your 401(k) provider before you received the check.)

[nhthomas]

I have the same problem, I entered the amount before tax was withheld in part D line 1 but TT is saying part D line 2 is too small (it shows 0), what should be there

[dslawson]

My gross distribution was 134,308.00, not what I reported on my return.