1099DIV Brokerage FBO IRA

[syoung123]

Hello, I converted my 401K into a rollover IRA, both are administered by the same brokerage company.  My 401K had about 200 shares of the company stock of the place that I worked.  Instead of having to convert the stocks into cash first and then deposited into the rollover IRA like the other mutual fund investments, they allowed these company stock shares to be transferred in the form of stock into the IRA.  However, instead of a direct transfer from the 401K into the rollover IRA, this brokerage company used Computershare as the transfer agent, so the stocks were moved from my 401K to a Computershare account, then I had to request Computershare to move the stocks to the rollover IRA.  In between the time of processing, the stocks paid a dividend and a check was sent to me with the "brokerage name" FOB of "my name" IRA.  The brokerage company told me to endorse the check and mailed it to them to deposit into my rollover IRA.  Now Computershare mailed a 1099DIV for the dividend amount to my address, and the 1099DIV shows the recipient name as, "name of brokerage" CUST FBO "my name" IRA.  The 1099DIV has my account number setup by Computershare, but it does not have my social security number.  Since the dividend check was deposited into my rollover IRA, and the payee is "name of brokerage" CUST FBO "my name" IRA, am I supposed to put it on my tax return as taxable dividend since I got the 1099DIV?  If not, what do I do with this 1099DIV?  Please advise.  Thank you.

[MinhT1]

You can disregard this 1099-DIV as this is made out to your IRA. All earnings with the IRA are tax-deferred.

[syoung123]

Thanks for your response.  After I posted my question, I did a search to see if there were similar questions and I found one post per below.  It seems to say it is taxable as non-deductible IRA contribution, and it doesn't make sense to me.  When the stocks were in my 401K, all the previous dividends were put into the 401K as tax deferred.  If the brokerage company did not use Computershare as transfer agent, and moved the stocks directly into the rollover IRA, this dividend would have gone straight into the IRA and I would not have received a dividend check.  Going forward, all the future dividends would be tax deferred in the IRA until I start take money out the IRA.  So this particularly dividend check should be tax deferred (not taxable for 2025), and your response would be correct.  Computershare told me they were required to issue a 1099DIV, and they could not advise me what to do with the 1099DIV.  When I asked the brokerage company, I could not find a person to give me a sensible response.  Based on what I saw in the post below, please re-confirm that you are correct, that it is not taxable for 2025, and I don't need to do anything with this 1099DIV.  Thanks much.       

 --------------

post from another person

1099-DIV issued on non-taxable money

I completed a rollover from a 401K to a Traditional IRA in Oct 23. I also wanted company stock transferred in kind to the IRA. The company stock was at the transfer agent (so no longer in the 401K) when the company issued a dividend. The dividend was sent to me via check along with a 1099-DIV.  The check was made out to my broker FBO me/ Traditional IRA. The check was deposited in the Trad IRA. The problem is the 1099-DIV shows the dividend as Ordinary (taxable) dividends and is reported to the IRS. The transfer agent says that the 1099-DIV should go to the broker/custodian and they will somehow also report to the IRS that the dividends went to the Trad IRA so no taxable event occurs.  I am only trying to understand the mechanism to how it should be reported, i.e. so no taxable event occurs.  Any suggestions from someone knowledgable on the subject?

 

• Not A Product Question
  posted

  ‎February 21, 2024 12:01 PM

  last updated ‎February 21, 2024 12:01 PM

   

   

   1 

   722

   

   

   

   

   

   

    DaveF1006

  Employee Tax Expert

   

   

   

  No.  The dividend is still taxable to you even if the dividend check was deposited into your Traditional IRA. The dividend will be treated as a non-deductible contribution in your Traditional IRA. Once you have entered the 1099 DIV information in your return, this is how you report this as an non-deductible contribution.

  1. Login to your TurboTax Account 
  2. Click on "Search" on the top right and type “IRA contributions” 
  3. Click on “Jump to IRA contributions"
  4. Select “traditional IRA”
  5. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
  6. Enter the amount you contributed
  7. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
  8. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
  9. Enter your basis in the Traditional IRA from your 2022 Form 8606 line 14 (if you had a basis in the prior year)
  10. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

[dmertz]

MinhT1's answer is correct.  The dividend was paid to your IRA, not to you.

The information that you found in DaveF1006's post does not apply to your situation.  Ignore this Form 1099-DIV.

[syoung123]

Thank you for MinhT1's and your responses.  I read the other post again and it seemed it was the similar situation.  401K was roll overed to traditional IRA, company stock portion  in 401K was sent to transfer agent, company issued dividend and a check with "broker name FBO owner name IRA" was sent to owner, owner deposited check into IRA, owner received 1099DIV showing ordinary dividend reported.  "DaveF1006" reply was the dividend should be reported as non-deductible IRA.  I cannot figure out that the other post's scenario was different from mine. 

I know MinhT1's and your response are correct that in my case the dividend check sent to me ("brokerage name" CUST FBO 'my name" IRA) is not taxable for 2025 (tax deferred) and I would just ignore this 1099DIV.  Please clarify.  Thank you again.

[DianeW777]

Yes, dmertz and @MinhT1 responses are correct. Keep the 1099-DIV in your tax file for future use, do not include it in your tax return because it belongs with the IRA account and you did not access or use the earnings from your IRA. When and if you do in the future, the income will be reported to you on a Form 1099-R.

@syoung123 

[syoung123]

Hello, I just saw your reply after I reposted my question.  It turns out that the 1099DIV has my social security number on it.  If I don't report it on the tax return as dividend, how would IRS figure out I put it into my rollover IRA, since Computershare issued a 1099DIV that shows it is a dividend distribution?  Also, it appears that the brokerage company which administers both my 401K and rollover IRA issued a 1099R that shows only the amount converted from 401K to IRA with code "G", the converted amount shows only the money coming out of the 401K balance and does not include the dividend amount that Computershare sent to me.  Thank you for your response in advance.

[DianeW777]

If I understand your recent comment, the dividend portion was received by you and not rolled into the IRA. If this is true, then report the 1099-DIV on your tax return. It's possible it was reported incorrectly or the dividend pay date occurred after the transfer from the 401(k) to the IRA.  

The reporting is somewhat confusing since logic would indicate a 1099-R may have been the correct action for the dividend. Regardless, the dividend can be reported as a dividend on your tax return since they issued that form, and it is not part of the transferred funds on the 1099-R.

@syoung123 

[dmertz]

The fact that the Form 1099-DIV has your SSN does present a bit of an odd situation since the dividend was actually made payable to your IRA.  It would have been better if no Form 1099-DIV had been issued at all.

"the dividend can be reported as a dividend on your tax return since they issued that form, and it is not part of the transferred funds on the 1099-R."

That doesn't work.  The payment was made to syoung123's IRA, not to syoung123, so it is not taxable to syoung123.  syoung123 never owned the shares.  The payee had to put an TIN on the Form 1099-DIV, and syoung123's SSN is probably all that they had, so that's what they used.  Because the dividend was paid to the IRA,I suspect that no Form 1099-DIV should have been issued at all.  As is, it would probably make sense to omit the Form 1099-DIV and include an explanation with the filed tax return.

[syoung123]

Hello All, to clarify, Computershare issued a check paid to - "brokerage company name" CUST FBO "my name" IRA.  I mailed the check to the brokerage company and they deposited it into my traditional IRA acct (the same one that the converted cash from the 401K and the company stocks went into).  Computershare issued a 1099DIV that shows my SSN as recipient ID # and the recipient name as "brokerage company name" CUST FBO "my name" IRA, for the dividend check amount.  I also received a 1099R from the brokerage company showing the "cash" they transferred from my 401K to the IRA, and the company stocks that Computershare generated as transfer agent (for the brokerage company, and then the stocks were transferred from Computershare to the brokerage company into my IRA account).  The 1099R does not appear to include the dividend check amount.

So it would appear that I have to report the 1099DIV since it has my SSN as recipient ID, even though the name is "brokerage company" CUST FBO "my name" IRA?  I am a little confused about your responses.  My apology.  Please advise.  Thank you.

[RobertB4444]

You should enter this as taxable dividend income on your tax return.  

You should be annoyed at having to do it.  The transfer agents screwed this up and the money was earned during the transfer instead of inside your IRA like it was supposed to.  But it did earn the money while it was outside your account.  And your IRA doesn't have a social security number or EIN to issue the 1099 to.  So Computershare did what they had to do and sent it to you.  

Pay the taxes on it, add it to the basis in the IRA and call it a day.

[dmertz]

"Pay the taxes on it, add it to the basis in the IRA and call it a day."

Nothing in the tax code permits such an adjustment to basis.  For something like that that to result in an increase in basis, the dividend would have to be treated as an ordinary distribution from the IRA and the subsequent deposit of the cash into the IRA as an ordinary contribution, subject to eligibility to make the contribution.

[Mike9241]

since it has his ssn he could report it in his 1040 and then use the nominee adjustment box to zero it out. 

[syoung123]

Thank you all for your responses.  The brokerage company put the dividend into my IRA, but there is no related 1099(R?) from the brokerage company to report this transaction.  My IRA was increased by this dividend amount as "cash deposit" that was lumped into one line item along with the company stock shares at their transferred price that said - [rollover contribution "name of company that I worked"].  Based on your responses, it looks that the best course is to report the dividend that shows on the 1099DIV as dividend on schedule B then?  And if I used the nominee distribution to adjust the dividend to zero on schedule B, am I supposed to send a 1099DIV form to the "actual owner", which would be the brokerage company, and also file a form 1096 with IRS?  I am kind of confused; the nominee distribution adjustment instruction (see below) appears to say I need to send a form to the "actual owner".

"A 1099-DIV nominee is an individual who receives dividend income in their name, but the income belongs to someone else (e.g., joint accounts, trust, or inherited property). The nominee must report the total, then deduct the portion belonging to others as a "Nominee Distribution" on Schedule B. The nominee must issue a new Form 1099-DIV (by Jan 31) to the actual owner and file it with the IRS using Form 1096 by Feb 28 (Mar 31 if e-filed)."

[syoung123]

To clarify, the dividend was lumped with the company stock shares at their transferred price as one line item that said rollover contribution on my brokerage IRA monthly stmt.

The tax on the dividend probably is about $25, maybe it is better to just report it as dividend and pay the tax on it, and not worry about making any adjustments to complicate the matters further?