Two 1099-R for 401K loan - which to use?

[ayiplkwok]

I’m trying to do my taxes and I am completely stuck with entering my 1099s since I have two for the same loan.  In May 2018 I did some loan on my 401k money from the financial institution (ADP), which I had built up while at a former employer (Company X).  Then my former employer (company X) got bought by other another employer (company Y).  All my 401K contribution and loan are also got transferred to another financial institution (Fidelity).  I left my employer and did not pay back the loan.  I know I must pay the penalty, report it as income, etc.  The issue is that I got two 1099-R docs for the same loan with one being from ADP, and the other from Fidelity.  The two are off by only ~$15, which I have no idea why, but if I enter these into Turbo Tax then it looks like double the income which isn’t correct.  I call both ADP and Fidelity and ask if one had submitted in error, but both said, “we don’t give tax advice’ and left me high and dry.  Addition both 1099s box 7 distribution code ‘1M’ which subjects to the early distribution penalty and income tax as I understand.  Both 1099s are also not marked as ‘corrected’ either, and both Total distributions are also 'Checked'.  My question here is, am I missing something, and is there a way I would enter both without them being double counted?  Thanks.

[AnnetteB6]

If you enter both Form 1099-R into your return, then both will be taxed and penalized.  There is not a way to get around that if they are both entered.

My opinion is that one of the forms was sent in error since they represent the same loan.  As long as you have documentation from when the loan originated and from the amounts that you repaid to justify that only one of the Form 1099-R should have been issued (meaning you only still owed the amount reported on one of the 1099-R and not both), then you should enter the Form 1099-R that was issued by the company who had control of the 401K at the time you left your job.  The loan balance did not become taxable to you until the date you left the company.  

If the IRS questions why both Form 1099-Rs were not reported, you should be able to provide your backup documentation to show that the one not included on your return was issued in error.

[dmertz]

The Forms 1099-R are correct.  You must enter both Forms 1099-R.  When entering the Form 1099-R from ADP, indicate that you moved the money to another retirement account and that you rolled over the entire distribution.

Effectively what happened is that a new loan was issued from your 401(k) at Fidelity and those funds were used to complete a rollover of the offset distribution that satisfied the loan that you had from the 401(k) at ADP.

If you can come up with the funds, you also have until the due date of your 2022 tax return, including extensions, to complete a rollover of the offset distribution that satisfied the loan you received from the 401(k) at Fidelity.

[ayiplkwok]

When I enter both I will get double penalty and tax.  I cannot write a note or do anything to indicate the money moved to another retirement account in Turbo Tax.  By the way, I did not move the money or my 401k loan.  My former employer (company x) got acquired by another employer (company y), and this new company moved all my 401k money and the loan to Fidelity.  

[DaveF1006 · Accepted solution]

I would enter both 1099R's and then exclude one of  the income amounts. Be sure to have an explanation ready though in case if the IRS asks you about the exclusion.  Here is how to handle the exclusion for one of the 1099R's.   

1. Click Federal > Wages & Income>all income>
2. Go to the last selection, Miscellaneous Income and click Start
3. Go to the last option, Other reportable income and click Start
4. When it asks, "Any other reportable income?" say yes and then type in a description and the amount to report it on your tax return. 
5. Report this as a 1099R issued for the same loan then enter the amount of the 1099R with a minus sign in front of the amount.

@ayiplkwok 

[dmertz]

"I cannot write a note or do anything to indicate the money moved to another retirement account in Turbo Tax."

That's not true.  TurboTax always allows you to indicate that a distribution reported with codes 1 and M was rolled over.  Edit the ADP Form 1099-R and review the questions that TurboTax asks.

Because the movement of the loan was reported as a distribution from the ADP 401(k), its reestablishment in the Fidelity 401(k) constitutes a rollover.  Reporting it as a rollover makes it nontaxable income.  Even though it must be included on Form 1040 line 5a, it will be excluded from line 5b with the ROLLOVER notation.

[ayiplkwok]

Just want to confirm on #5, you said 'a minus sign in front of the amount', that is the amount of the exclude one, correct?  Thanks.

[AmyC]

Yes. One is a rollover and one is an exclusion from income. Keep all paperwork since this is retirement money it will be a long time before it is used completely.

I want to urge you to create a financial notebook that is kept separate from your tax return. Keep it safe and each year, add your year-end statements from all your financial accounts plus a copy of your W2’s, your  carryover information, and proof of your basis in your various investments. You must keep tax records  from the time you purchase until sold/ loss used plus 3 years. It is very easy to lose track of disallowed losses, carryforwards,  and basis.