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New Member
posted Mar 25, 2025 10:11:37 AM

I had an indirect rollover to another IRA account, why am I getting a penalty?

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2 Replies
Level 15
Mar 25, 2025 10:15:49 AM

Did you also enter it under Deductions & Credits like a new contribution?  Only enter it from the 1099R nowhere else.  Did you have any tax withholding taken out?  If you had withholding you needed to replace the withholding with your own money or the withholding becomes a distribution and taxable and a 10% Early Withdrawal Penalty if you are under 59 1/2.

 

Expert Alumni
Mar 25, 2025 10:22:21 AM

After you enter your Form 1099-R, you have to go through a series of questions.  After the form entry, you will see a summary screen.  Be sure to click on Continue and answer the questions.  One of those questions asks what you did with money.  You have to indicate that you rolled over all of the money to another IRA.  You need to return to the 1099-R entry and verify your entries and answers to your questions.   The rollover must be completed within 60 days.

 

If the distribution came from a 401(k) or other qualified retirement plan, the custodian is required to withhold 20% federal tax on early distributions paid directly to you.  If you don't use out of pocket funds to replace it and rollover the gross amount (as opposed to the after tax) that tax amount will be considered a taxable distribution, subject to a 10% penalty if you are under age 59 1/2 and no exceptions apply.