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davidsr58
New Member

On my 1099-R my gross distribution was 26,029.61 and on line 4 the FITW was 5205.92. Why am I still being taxed on the gross distribution?"

 
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RBBrittain
Level 8

On my 1099-R my gross distribution was 26,029.61 and on line 4 the FITW was 5205.92. Why am I still being taxed on the gross distribution?"

Unless you had "basis" (i.e., an allocated share of after-tax contributions) in your plan distribution -- commonly reflected in Box 2a -- you're taxed on your ENTIRE gross distribution. The 20% withholding on certain lump-sum distributions is just like W-2 withholding; it is a prepayment of your 1040 tax liability and does NOT reduce your taxable income in any way. (It's added to your tax withholdings at the end of your return.)

This is commonly seen on 401(k), IRA or similar rollovers that are NOT "direct rollovers" paid directly from your old plan to your new one. If that is the case, to take full advantage of the rollover you MUST make up the withholding amount with your OWN funds within the rollover time frame; otherwise the 20% withholding amount is NOT considered "rolled over" and is subject to taxes and possible penalties. (To avoid this, do a direct rollover.)

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RBBrittain
Level 8

On my 1099-R my gross distribution was 26,029.61 and on line 4 the FITW was 5205.92. Why am I still being taxed on the gross distribution?"

Unless you had "basis" (i.e., an allocated share of after-tax contributions) in your plan distribution -- commonly reflected in Box 2a -- you're taxed on your ENTIRE gross distribution. The 20% withholding on certain lump-sum distributions is just like W-2 withholding; it is a prepayment of your 1040 tax liability and does NOT reduce your taxable income in any way. (It's added to your tax withholdings at the end of your return.)

This is commonly seen on 401(k), IRA or similar rollovers that are NOT "direct rollovers" paid directly from your old plan to your new one. If that is the case, to take full advantage of the rollover you MUST make up the withholding amount with your OWN funds within the rollover time frame; otherwise the 20% withholding amount is NOT considered "rolled over" and is subject to taxes and possible penalties. (To avoid this, do a direct rollover.)
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