Is it considered income and how do I account for the penalty in my taxes, where MetLife penalized me for early direct rollover to a bank IRA.

[adlon]

I closed my MetLife account early, aware they would  penalize me, 35K to be exact.  Now I want to take a deduction from another IRA that  I know it will be considered income.  If the MetLIfe 35k is income, I will be over my income limit for Social Security.

[Carl]

What kind of account was it you had with MetLife? A traditional IRA? Something else? Were you under the age of 65 on the date of the withdrawal? What did you do with the money you withdrew from MetLife? It matters so I don't waste your time providing information that doesn't apply to your specific situation. That may just confuse you, and I don't want to do that.

[adlon]

It was a MetLife IRA.  Initially I did a direct rollover from my retirement account.  Not satisfied with MetLife and their support, I recently did a direct rollover from MetLife to a different IRA account.  I never touched any of the money. However they did penalize me.  

[adlon]

I was over the aged of 65 when I did the direct rollover from MetLife to another bank.  MetLife penalized me because I had a 7 year term on the contract and I had not had the account for 7 years.  

[VolvoGirl]

You will get a 1099R in January.  It won’t be taxable unless you rolled it over to a ROTH IRA.  The early withdrawal penalty they charged you is just from your account to them.  That won’t affect your taxes unless it’s treated as a distribution to pay the fee.

[VolvoGirl]

Was 35K the total of the account or the amount rolled over or just the  Early Withdrawal Penalty?
Thoughts, @dmertz ?

[adlon]

The 35K was just the Early Withdrawal Penalty.  

[dmertz]

Sounds like the IRA held an annuity as an investment and the annuity had a surrender charge.  I would expect that the surrender charge on the annuity would simply be a reduction in the value of the IRA, an investment loss, not a distribution from the IRA, but I don't have any experience with surrendering an annuity held in an IRA.  It's also possible that the IRA was a CD IRA with a long term and this is a CD early-withdrawal penalty, which I would expect to be similar.

[Carl]

If the penalty was paid to them directly from the withdrawal, then I would expect it to be considered a taxable withdrawal since you were over the age of retirement at the time the transaction occurred. Hopefully, I'm wrong on that.

[adlon]

I think I am going to pursue this train of thought, because it was an IRA investment annuity and it did have a surrender charge.  The real question is would the surrender charge be a simple reduction in the value of the IRA or like Carl states, the penalty was paid directly from the withdrawal and therefore, back to my original question, was it a taxable event?  

[Carl]

You'll know if it was a taxable event or not, when you get the 1099-R. If the 1099-R includes the penalty amount in the total reported in box 2a, then it's a taxable event. if the amount in box 2a is $35K less than the amount in box 1, then it's not a taxable event. To understand, you can see the 1099-R form at <a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/f1099r.pdf">https://www.irs.gov/pub/irs-pdf/f1099r.pdf</a>

[Opus 17]

With a traditional IRA (tax-free contributions) you only pay income tax on money you withdraw.  I think you will find that any penalties will be deducted from your account with no tax reporting, simply leaving you with less money to withdraw and pay tax on in the future.  It should be the same as if your trustee charged you a $$ per year maintenance fee, or you had an investment loss.  Gains, fees and losses aren't taxable or deductible, they just result in more or less money to withdraw when you want it.

You can call the trustee or wait for the 1099-R, but I would be very surprised if this was treated as a distribution, and I would argue that it should not be a distribution.

[adlon]

I took an opportunity to speak with annuity specialist Christine at MetLife/Brighthouse customer service.  She stated that this was not considered a withdrawal, but rather just a fee that they charged for the transaction, resulting in a less money for me to withdraw.  Thanks Opus 17.