Question about 1099-R

[audreyhamik]

My husband left his job and took his retirement money out (did not roll over). We received 3 1099-R  forms today.  The 1st one shows the full amount he had taken out, and the other 2 are split that show the payment of an outstanding loan he had on it.  The loan balance was paid from the full distribution amount.  Why would be get 3 forms? The loan was paid off and then we received the remaining balance. I put all 3 in the tax form and it says we owe almost $8000 collectively between state and federal (we were getting a refund until I put this in). I don't understand how even after paying taxes when we took the money out we are getting a huge tax bill and how we have 3 forms to file when the loan was paid with account money prior to distribution (used money from what was able to be distributed prior to distribution). Help! I can't afford $8k and I can't even get a loan for that.

[VolvoGirl]

That sounds complicated.  I'll page @dmertz 

[dmertz]

One of the Forms 1099-R from the employer's plan likely reports a qualified plan loan offset distribution and includes code M in box 7 to indicate that your husband has until the due date of his tax return, including extensions, to come up with the funds to roll this amount over to a qualified retirement account like an IRA.

Another of the Forms 1099-R from the employer's plan would likely be reporting the distribution of the balance that remained in the plan after a portion was used to satisfy the offset distribution.

Why there is a third Form 1099-R is a bit of a mystery unless your husband also had funds in a designated Roth account in the plan which was also distributed or perhaps if your husband left the employer in or after the year he reach age 55 and in 2024 he reached age 59½.

TurboTax is likely correct in the amount of tax liability generated by these distributions.

What are the codes in box 7 of each of the Forms 1099-R?

[audreyhamik]

One form shows  a code MB in box 7, another one shows M1, and the other shows code 1 (this is the one what has listed the actual balance of the account prior to the loan being paid).  The other 2 forms (spilt amounts add up to the amount of the loan that had to be paid, which were paid from the account balance before we received any distribution).  There is no outstanding loan balance.  And yes, he did withdraw the money before age 59. He is 47.

[dmertz]

OK, the B indicates a distribution from the designated Roth account in the plan.  Offset distribution were made from both the traditional account and the designated Roth account to satisfy the loan.  The code-1 Form 1099-R reports the distribution of the remaining balance from the traditional account.  (Given that there is no code 1B Form 1099-R, it appears that the entire balance in the designated Roth account when to the offset distribution.

Each of these Forms 1099-R must be entered into TurboTax.  If your husband does not come up with the necessary funds to complete rollovers of the code-MB and code-M1 distributions by the due date of his tax return, including extensions, the taxable amount shown in box 2a of each of these forms will add to AGI and taxable income.  I'm guessing that the distribution of the remaining balance was more than 60 days ago and the deadline for rolling over of this portion has passed, so the amount in box 2a of the code-1 Form 1099-R will add to AGI and taxable income.  There generally would have been mandatory tax withholding from the code-1 distribution, so the amount in box 4 of that Form 1099-R will be credited on Form 1040 line 25b, but from your statement that there the balance due on your tax return is $8,000,  it seems that that the amount withheld was not sufficient to cover the increase in tax liability resulting from these distributions.

[audreyhamik]

Thank you for all your help! Appreciate it.  Looks like well have to set up a payment plan for IRS to settle the matter.  Thank you.