IRA payment in error returned. How do I report this?

[dschelli]

I was paid $1200 less withholdings in error from my IRA.  That money was returned to my IRA and is being reported on Form 5498 as a "rollover contribution" making it non-deductible yet the original $1200 is included on my 1099-R as part of the overall taxable amount. 

Sine this was paid out in error and returned to the original account, it doesn't seem like I should pay taxes on it now and again in the future when I take truly take it out.  How do I record this in Turbo Tax correctly?

[VolvoGirl]

When you returned the money did you add back in the amount taken out for withholding?  If not then the withholding became a distribution by itself and taxable.  Sorry.  

[dschelli]

The original payment made in error by Fidelity, was a gross amount of $1200, less $180 federal withholding and $18 CA state withholding, for a net of $1002.00.   The full $1200 was returned, via a reversal processed by Fidelity, although they stated they were unable to pull the withholding back from the IRS/FTB.

[RaifH · Accepted solution]

If it was re-deposited within 60 days of the distribution, you can mark this as an indirect rollover which will not be taxable. The amount of taxes withheld will still be credited towards this year's tax returns, so you will get the benefit this year. You will not receive any benefit for pre-paying the taxes when you pull this money out again in the future. To report this correctly in TurboTax:

1. Search for 1099-R and select the Jump to link in the search results.
2. Continue through the screens to import or enter your 1099-R form.
3. When asked Tell us if you moved the money through a rollover or conversion select I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days) and Continue.
4. On the next screen, Did you roll over all of this (Box 1) to another retirement account? answer Yes, I rolled over to an IRA or other retirement account (or returned it to the same account) and Continue.

The wording may be a little different depending on how your 1099-R is coded, but as long as you re-deposited within 60 days you can mark it as a rollover and it will not be taxable. 

[dschelli]

thank you!!