Question

Retirement plan

Forum|Forum|5 years ago
June 29, 2020
1 reply
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I retirement money from my previous employer who was a non profit organization. I was able to withdraw it after age 55. I believe it was a 403B account and the balance was 68,000. I rolled over all but about 35,000. My question is there is a section in Turbo Tax that says "these situations may lower your tax bill "

and one of them is "Separation from Services the year during or after age 55", can I put the 68,000 in that slot. I rolled over the whole 68,000 to a traditional IRA and then withdrew the 35,000 from the company and they withheld the taxes for me. So I received two 1099 R's. One from the previous employer and the other from the company I did the traditional IRA.

O

Opus 17

Employee

Your question says that you did two different things. It says that you rolled over all but $35,000, which you kept, and it also says that you rolled over the entire $68,000 and then took a distribution from the new account of $35,000. These are two very different things and you must be clear on exactly what you did. If you rolled over the entire amount to a new IRA and then took a distribution from the new IRA, you may have made a significant financial mistake.

All withdrawals from a traditional IRA or 403(b) or 401(k) are always subject to regular income tax. For a traditional IRA, withdrawals before age 59-1/2 are subject to a 10% penalty. For work-sponsored accounts like a 401(k) or 403(b), you may withdraw the money without the 10% penalty if you withdraw the money after separating from service if you are 55 or older in the year you separate from service.

However, when you rolled the money over into a traditional IRA, you lost the protection of that special rule. Any withdrawal you now make from the IRA is subject to a 10% penalty unless you turned 59-1/2 during the year that you made the withdrawal.

now, if you are under age 55 or over age 59-1/2, the tax treatment is the same no matter what you did. You are either subject to a 10% early withdrawal penalty if you’re under age 55, or you are not subject to the 10% penalty if you are over age 59-1/2. But if you are between the ages of 55 and 591/2, and you rolled over the entire 403(b) into an IRA, and then took a partial distribution from the IRA, you will owe a penalty that you would not have owed if you had withdrawn the money directly from the 403(b).

All you can do is enter the two 1099-Rs exactly as you have them. For the 403(b) account, you will check a box that you rolled the money over to a traditional IRA and the rollover will not be taxable. For the withdrawal from the IRA, you will pay regular income tax plus the 10% penalty if you are under age 59-1/2.