1099-R distribution with indirect rollover

Forum|Forum|6 years ago
February 8, 2020
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My husband got 1099-R due to a 401K distribution that should not have happened. Financial company never contacted him on how to disperse his 401K when he left a company last year. They just cut him a check. So he took that check and did an in-direct rolled over into a retirement account through his new employer. Well with that disbursement tax of $180 was withheld. It seems that Turbotax is considering the $180 portion that was withheld as taxable and is taking another $18 as tax (10% penalty). Per Turbotax info we should have added $180 to the rollover, but financial company stated that we could not do that as it was not part of the disbursement check. So are we out the $180 tax withheld + $18 for tax penalty or is there a way around this issue? We never got the $180 as it went straight to the federal government. On 1099-R form box 1 and 2a is the same amount $899.54 and, box 4 $179.91, box 7 is 1 and the IRA box is not checked. $719.63 was the amount rolled over. Thanks

Best answer by MinhT1

The TurboTax program is correct. To be completely tax free, the indirect rollover must be for the gross amount.

As the indirect rollover was $180 short, the IRS considers that you have an early withdrawal of $180. This $180 is taxable and subject to the 10% penalty. Your $180 tax withheld is not lost. It counts as a tax credit toward your tax liability.

MinhT1Answer

The TurboTax program is correct. To be completely tax free, the indirect rollover must be for the gross amount.

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tschindlerAuthor

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

macuser_22

Employee

@tschindler wrote:

What form would the $180 show as a tax credit toward my tax liability? I am only seeing it as a taxable amount on my 1040 and I don't see anything about a tax credit. Thanks!

The $180 should be in box 4 on the 1099-R and will be added to all other W-2 and 1099 withholding on line 17 of the 1040 form to offset any tax owed or add to your refund.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**