1099-R distribution with indirect rollover

[tschindler]

My husband got 1099-R due to a 401K distribution that should not have happened. Financial company never contacted him on how to disperse his 401K when he left a company last year. They just cut him a check. So he took that check and did an in-direct rolled over into a retirement account through his new employer. Well with that disbursement tax of $180 was withheld. It seems that Turbotax is considering the $180 portion that was withheld as taxable and is taking another $18 as tax (10% penalty). Per Turbotax info we should have added $180 to the rollover, but financial company stated that we could not do that as it was not part of the disbursement check. So are we out the $180 tax withheld + $18 for tax penalty or is there a way around this issue? We never got the $180 as it went straight to the federal government. On 1099-R form box 1 and 2a is the same amount $899.54 and, box 4 $179.91, box 7 is 1 and the IRA box is not checked. $719.63 was the amount rolled over. Thanks

[MinhT1 · Accepted solution]

The TurboTax program is correct. To be completely tax free, the indirect rollover must be for the gross amount.

As the indirect rollover was $180 short, the IRS considers that you have an early withdrawal of $180. This $180 is taxable and subject to the 10% penalty. Your $180 tax withheld is not lost. It counts as a tax credit toward your tax liability.

[tschindler]

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

[macuser_22]

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@tschindler wrote:

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

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The $180 should be  in box 4 on the 1099-R and will be added to all other W-2 and 1099 withholding on line 17 of the 1040 form to offset any tax owed or add to your refund.

[Val18]

Had similar issue with tax withheld on a DIRECT rollover, but cannot get turbotax to recognize the tax owed on the withheld tax amount. I think it is because of the "G" code in box 7. Any way around this within Turbo tax? Or should I "fake" it out using a "1" code as early distribution, and use the taxable amount as the amount of tax withheld?

[macuser_22]

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@Val18 wrote:

Had similar issue with tax withheld on a DIRECT rollover, but cannot get turbotax to recognize the tax owed on the withheld tax amount. I think it is because of the "G" code in box 7. Any way around this within Turbo tax? Or should I "fake" it out using a "1" code as early distribution, and use the taxable amount as the amount of tax withheld?

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Explain what you mean "recognize"?.

What was rolled to what?

What is on box 2a?   Was this a Roth IRA conversion?

Was tax withheld in box 4?

[Val18]

I couldn't get Turbo tax to acknowledge that the withheld tax portion was taxable at all, no tax was charged on the 1099 R and no penalty was assessed.

For example 1099R Gross amount was $3,500, tax withheld was $600, the actual rollover amount was net the tax of $2,900 to the new IRA. Box 2A showed the full $3,500. Box 7 showed "G" as a direct rollover.

No Roth involved at all, It went from an employee 401k plan to an individual retirement account.

So Turbo tax did not tax the $600 or put a 10% penalty on the $600 either.

I was wondering why Turbo tax did not pick this up.

[macuser_22]

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@Val18 wrote:

I couldn't get Turbo tax to acknowledge that the withheld tax portion was taxable at all, no tax was charged on the 1099 R and no penalty was assessed.

For example 1099R Gross amount was $3,500, tax withheld was $600, the actual rollover amount was net the tax of $2,900 to the new IRA. Box 2A showed the full $3,500. Box 7 showed "G" as a direct rollover.

No Roth involved at all, It went from an employee 401k plan to an individual retirement account.

So Turbo tax did not tax the $600 or put a 10% penalty on the $600 either.

I was wondering why Turbo tax did not pick this up.

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Hold on - there is a problem there.

A 1999-R with a code G and a taxable amount in box 2a is NOT a direct rollover to a Traditional IRA which is totally tax free.  The box 2a would be a zero and no tax would have been withheld.

What you described is a rollover conversion to a Roth IRA that does have the box 1 amount also in box 2a because it is taxable.

You need to check with the receiving bank to see just what type of account the money is actually in.  

Why would you have tax withheld for a totally, not taxable, rollover to a Traditional IRA?

If actually a Roth IRA then in the 1099-R interview you answer YES to the rollover to a Roth IRA question.

[EdMC]

I am having a hard time figuring this out.

1099R was provided showing funds distributed to me when it was supposed to go to Fidelity.   based on that, Turbotax says it was a distribution and I was taxed.

However, I signed the check and deposited into Fidelity IRA before the 60 days.  Fidelity provided a 5498 showing the re-investment of the retirement funds back into the funds.

How do I avoid paying the taxes from the 1099R that was submitted?  I am not allowed to change it to INDIRECT dispursement.

[VolvoGirl]

Go back and edit the 1099R.  After you enter the 1099R it will ask you what you did with it.  Didn't  you get that screen?  You pick you moved or rolled it over to another account.  Then it will expand and ask how much.  What code is in box 7?  What was it from, a IRA or 401k or pension?  

[VolvoGirl]

Made you a screen shot.  You should get a screen like this.

[VolvoGirl]

This is the best screen shot.  Showing all the expanded choices

[EdMC]

I did

I have 7 in box 7.  It was from ira

[EdMC]

I did that.  it still showed i owed.

i saved everything and came back in and went directly to that section.  Now, it allows me not pay taxes.

wierd.

[EdMC]

thanks for your help.