Early withdrawal Penalty for 401K rollover to Roth IRA

[steinbla]

I rolled over a Prudential 401K into a Fidelity Roth IRA and when I am wrapping up my Retirement and Investments section in TurboTax Premier Dowloaded program the program is telling me that I have to pay an early withdrawal penalty.  I also paid out taxes on this rollover at them time of the rollover.  

I can't seem to get the system to recognize this error. 

[HelenC12]

Please clarify. 

• Are you getting an early withdrawal penalty of 10% of your rollover amount or are you being assessed an underpayment penalty? 

[steinbla]

Looks like a 10% fee.  It states that this penalty is because I didn't use the money for a special situation that qualifies such as Medical Expenses, disability, or death.  

But, I didn't use the money at all.  It was merely a transfer. 

[ColeenD3]

You need to indicate that this was a rollover. You must have made the transfer within 60 days to qualify.

[steinbla]

I'm sure I understand the 60 day qualifier.  It that 60 days from the termination of that job? Or wishin 60 days of this tax season?

I have entered this information under the 1099-R section.  The following statement then populates: If you used the money taken out of a retirement account (other than IRA) for any of the following reasons, you may not have to pay taxes.  The list a number of reasons such as medical expenses, death, IRS Levy or Other reason, no of which pertain to me.

Thank you for your assitance!

[macuser_22]

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@steinbla wrote:

I'm sure I understand the 60 day qualifier.  It that 60 days from the termination of that job? Or wishin 60 days of this tax season?

Thank you for your assitance!

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60 days from the date of distribution if you received the money.    If it was a direct rollover form the plan to the IRA then the 60 day limit does not count.   And there is no 10% penality for a rollover/conversion.  Sounds like you entered the 1099-R incorrectly.

What code is in box 7? And is box 2a the same as box 1?

[steinbla]

Thank you for your response,

For this rollover I received two 1099-R forms.  It appears that one is for the amount that I was taxed and the other is the amount that rolled over to my Roth IRA. 

For the amount that I was taxed out:

Box 1 and 2a both show the same amount. and the distribution code in Box 7 contains: 1 

Here I see that one I have entered all this information I needed to identify that this went to a Roth account.  It is unclear if, in box 7, I should choose 1 type B (designated Roth Account Distribution),  H (Direct Rollover of a designated Roth), Q (Qualified Roth IRA distribution ) or another option offered. 

For the amount that rolled over: 

Box 1 and 2a also show the same amounts and the distribution code in box 7 is : G.

I also see that I have a secondary drop box here also and am unsure option (similar to that listed above) would be appropriate to ensure my 1099-R is received accurately.

[macuser_22]

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@steinbla wrote:

Thank you for your response,

For this rollover I received two 1099-R forms.  It appears that one is for the amount that I was taxed and the other is the amount that rolled over to my Roth IRA. 

For the amount that I was taxed out:

Box 1 and 2a both show the same amount. and the distribution code in Box 7 contains: 1 

For the amount that rolled over: 

Box 1 and 2a also show the same amounts and the distribution code in box 7 is : G

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That is very unusual.    Did your 401(k) have both before tax and after-tax contributions and you are rolling the after tax amount to a Roth?   If that is the case then that 1099-R should also have a code G with the amount in box 1 and zero in 2a and the amount of your after-tax contributions in box 5.   That would be a tax free rollover but what they issued with a code 1 and box 2a the same as 1 is taxable income.

Is there anything in box 5 on that code 1 1099-R?

Having a code 1 1099-R is OK if the money was issued to you and you deposited it into a Roth, but if it was after-tax money then box 5 should have that amount and box 2a should be the box 1 amount minus box 5 so if all after-tax money then box 2a would be zero.

And it should NOT be a code B or H.

[steinbla]

To the best of my knowledge, the representative that I worked with at Prudential to initiate this rollover categorized this so that the amount being rolled over from 401K to Roth IRA was taxed at the time of the rollover. 

The 1099-R with box 7 showing the number 1 has an empty box 5. 

[macuser_22 · Accepted solution]

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@steinbla wrote:

To the best of my knowledge, the representative that I worked with at Prudential to initiate this rollover categorized this so that the amount being rolled over from 401K to Roth IRA was taxed at the time of the rollover. 

The 1099-R with box 7 showing the number 1 has an empty box 5. 

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That is NOT how they issued the 1099-R.  Box 2a should have been zero and you after tax contributions in box 5.   You need a corrected 1099-R.

That told you that the money had already been taxed but they issued a 1099-R that said the entire amount was taxable - box 2a IS the taxable amount.

[steinbla · Accepted solution]

Thank you!!