1099-R

Forum|Forum|2 years ago
March 26, 2024
2 replies
39 views

I was 41 years old last year. Last year, I asked my financial organization to roll over $8000 in my pre-tax 403(b) to ROTH IRA in the same organization. The organization rolled over $6400 and withheld $1600 for federal tax. Consequently, I received two 1099-R forms. The 1099-R form for the $1600 withheld federal tax has a distribution code "2" for Box 7. My understanding is that the $1600 is subject to the 10% penalty so the distribution code should be "1". I contacted the financial organization and they refused to correct the form. My questions are:

1). Is my understanding that the $1600 tax withheld is subject to the 10% penalty correct?

2). If my understanding is correct and the financial organization refused to correct the 1099-R form, how to correctly file the my tax using the TurboTax? Should I just put distribution code "1" when I put in the information in TurboTax?

KrisD15

Level 15

To clarify, had the employer contributed to the 403(b) and is the box for IRS/SEP/SIMPLE checked on the 1099-R?

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

Hippo24Author

Level 3

Both employer and me (employee) contributed to the 403(b) when I was an employee there. The "IRA/SEP/SIMPLE" box is not checked.

DaveF1006

Level 15

Yes, this was not handled correctly. You should have received a 1099R reporting $8000 as the amount in Box 1. Federal income Tax in box 4 and a distribution code "G" in Box 7.

As it stands now, only $6400 has been rolled into your Roth account. A second 1099R is issued that is subject to a early withdrawal penalty. In addition, it may have been reported as taxable income on your return. You do need a 1099R to correct this mistake because this makes a huge difference in your return.

[Edited 03/26/24|4:15 pm PST]

@Hippo24

**Say "Thanks" by clicking the thumb icon in a post. **Mark the post that answers your question by clicking on "Mark as Best Answer"

dmertz

Level 15

This was handled oddly and is oddly reported on the Forms 1099-R.

First, if your intent was to roll over $8,000 from the traditional account in the 403(b) to the Roth IRA, the entire $8,000 should have been deposited into the Roth IRA as a direct rollover for which there would have been no requirement to withhold taxes. You then would have paid the increase in your tax liability using other funds.

It appears that they instead did an indirect rollover which requires a minimum of 20%, $1,600 in this case, be withheld for taxes. Why they would do an indirect rollover in-house is a mystery since it makes no sense to do that. However, given that they did an indirect rollover, only $6,400 was rolled over to the Roth IRA and $1,600 was an ordinary early distribution. It seems that they used code 2 for this rollover of the $6,400 because they knew that it went to the Roth IRA. They probably should have reported it as a direct rollover using code G, but the result with code 2 is the same as long as you tell TurboTax that the $6,400 was rolled over ("converted") to a Roth IRA.

The $1,600 reported on the code-1 Form 1099-R represents an amount distributed to you and not rolled over to the Roth IRA, so it is subject to an early-distribution penalty unless within 60 days you used other funds to complete the rollover of the $1,600.

Hippo24Author

Level 3

You are very correct that this was handled oddly. When I filled out the paperwork for the rollover, I chose not to withhold federal tax but they still withheld 20%. I contacted them after and they said they made a mistake. I could submit a formal complain and they could try to get the $1600 back from IRS but they said there was no guarantee as it is easy to "send money to IRS" but it is difficult to "get the money back". Then I was like fine and I did not want to go through the hassle to change it.

They used the correct code "G" for the 1099-R for the $6400. However, they used code "2" for the 1099-R for the $1600. I think they should use code "1" for the $1600 but they said the "$1600" is not subject to the early withdraw penalty. Should I just put code "1" when I put the 1099-R information in TurboTax for the $1600 even it is code "2" on the form I have?

@dmertz