To clarify your wife rollover over part of a 401K to a traditional IRA and took a partial distribution.
Many people get confused when money is withheld from the distribution. They think the taxes are being paid. No, the taxes are not being paid. What is happens is very similar to what happens with your W-2. An amount is withheld from the distribution to be applied towards the taxes that might be owed on the distribution.
At the end of the year in which the distribution was taken, you will receive a 1099-R for the amount of the distribution. The 1099-R reports the amount of distribution, the taxable amount of the distribution, shows the amount that was withheld from the distribution and the applied a Code to the distribution. The Code identifies the type of distribution and tells us whether it was an early distribution, normal distribution, or some other form of distribution.
In your case, you should have received two 1099-R forms for this rollover and distribution. One 1099-R will be for the rollover amount and Box 7 should have a Code G. Also, Box 2 should be blank.
The second 1099-R would be for the amount of distribution she took. Box 1 and Box 2 should be the same, Box 4 would show the withholding (this is the amount most people think is the tax) and the Code in Box 7 would most likely be a 1, 2, or 7. These codes determine how the distribution is taxed and whether there is an early distribution penalty. An early distribution penalty would occur if your wife is under the age of 59 1/2.
You will report this under the Income and Expenses section of your return under Other Common Income. Look for Form 1099-R and click on Start. Enter both FOrm 1099-Rs.
