HELP!! Withdrawal of Retirement Funds

[leneanne86]

I withdrew funds from the retirement account. When I went to a bank office, I was pretty much forced to put into an investment account. I just wanted to get out of there and thought I'll just withdraw it from there. So, I did. Now I got a notice from IRS that I didn't file my tax correctly. Does this mean I will tax twice for the same funds!?! I'd appreciate your responses!!

[VolvoGirl]

No, not twice.  You will get a 1099R for the retirement withdrawal.  It will be taxable.   Then if you put it in a personal investment account and then took it out you may have to report a Sale from the investment.  

You get a 1099B for sales.  You only pay tax on any Gain you made (Sales price - what you put in).  If you got less than you invested you can deduct a Loss.

Did you report the 1099R on your tax return?  It should show up on 2018 1040 line 4b as taxable.  Or didn't you report the 1099B?

[macuser_22]

If you took a distribution for a retirement account then it was probably a Traditional or Roth IRA and the financial institution would have issued a 1099-R for the year that the distribution took place.  You were required to report that 1099-R on your tax return.   It a Traditional IRA then probably the 1099-R box 1 amount would be taxable income, of a Roth IRA then it may or may not be taxable depending on your circumstances.    Either way failure to report the 1099-R at all will make the IRS assume that it was all taxable and they will bill you.

What does the letter say?  What tax year is this for?

[leneanne86]

Thank you so much!!  I did get 1099-R from both bank and "retirement".  I only filed the one from the bank. :(  I'm afraid I'm going to owe a lot + penalty. 

[leneanne86]

Thanks for the reply.  It was for 2017.

[VolvoGirl]

Oh, was the investment at the bank into another IRA account?  You still needed to report the first 1099R and say you rolled it over to the new IRA account.   Then the first 1099R won't be taxable.

[leneanne86]

I think I had a 401k in retirement account and IRA in the bank.  How much does IRS penalize?  Is it the same amount as how much I'd owe?

[macuser_22]

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@leneanne86 wrote:

I think I had a 401k in retirement account and IRA in the bank.  How much does IRS penalize?  Is it the same amount as how much I'd owe?

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A 401(k) is an employer sponsored retirement account.    That would not be in a bank unless you were the employer (self-employed 401(k) ), otherwise it would be distributed by the 401K) plan trustee.   If it was a 401(k) that yiu rolled into a IRA then you should have reported that distribution as a 401(k) to IRA rollover and there would be no tax or penalty at all.  That 1099-R should have had a code "G" in box 7.

The IRS will add late charges and interest to late payments of tax.  They will bill you separately for those.

[leneanne86]

The retirement funds I took out was from my employer.  

Thank you so much for all your help!  Will IRS accept installment payments?   I am just so worried.

[macuser_22]

Call the IRS on the number for more information that should be in the letter you received and tell them what happened.   Only the distribution from the IRA should be taxable.

[VolvoGirl]

Based on what you said I don't think you really owe any more tax.  You probably need to amend the return to add the 401K 1099R and say you rolled it over to the IRA.  Unless you put it into a ROTH IRA at the bank.  What code is in box 7 on both the 1099R you got?

Did you pay tax on the bank IRA withdrawal?  Is there a taxable amount on 1040 line 15b for it? 

You might owe a penalty for taking it out early or if you are under 59 1/2.

[macuser_22]

I understood the original question to say that the OP tried to simply cash the check form the 401(k) plan but the bank insisted that it be put into another account (as they should for a check from a 401(k) to a rollover IRA).  That distribution should have been reported as a non-taxable rollover with a 1099-R that probably has a code G in box 7.

The OP then immediately cashed out the IRA that probably generated a 1099-R with a code 1 in box 7 (if under age 59 1/2) or a code 7 of over age 59 1/2.   That distribution would be fully taxable plus 10% penalty if a code "1".

[leneanne86]

You sound very knowledgeable.  So here’s what happened, I took my $ out of my retirement account (from employer).  Once I received the check, the bank put it on an IRA account when all I wanted to do was to put the $ into a savings account.  I needed that $ so I took it all out of the IRA account.

 I did receive 1099-R from my retirement account and another 1099-R from the bank.  I did follow the step-by-step on filing these on turbo tax online.  I did not miss a single step at all.  I made sure I copied everything whats on that form to turbo tax return.  Now, I don’t know why IRS think I understated my taxable income line/box. 

my question is will I get taxed and penalized for both 1099-R’s when the 1099-R from the bank is the $ I received from my retirement (employer)????  I feel like am IRS is taxing me twice for the SAME $..... 😭

[NCperson]

you won't get taxed twice...but what are the codes on each 1099 you received? (box 7)

[dmertz]

When you enter the Form 1099-R from the original retirement account, you'll indicate to TurboTax that it was rolled over to another retirement account (the IRA), making it nontaxable.  If the code in box 7 of the Form 1099-R from the original retirement account is G (which is likely the case if the bank forced you put the money into an IRA, suggesting that the check was made payable to your IRA instead of being made payable to you personally), the code G itself indicates that the distribution was rolled over.  In this case the amount in box 2a of the Form 1099-R would be zero, indicating that the rollover is nontaxable.

If the distribution was made payable to you, the Form 1099-R from the original retirement account would instead have code 1, 2 or 7 in box 7 and would have a taxable amount in box 2a.  In this case you would have to explicitly tell TurboTax that the distribution was rolled over, making it nontaxable.