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June 2, 2019
Question

Withdrew 401k in 10/2015 & paid taxes. Put the rest into an IRA & withdrew 1/2016. IRS is taxing me again on the same money. Any way out besides paying taxes again on it?

  • June 2, 2019
  • 6 replies
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6 replies

Employee
June 2, 2019
Did you roll over within 60 days?
macuser_22
Employee
June 2, 2019
"Put the rest into an IRA..."  What does that mean?    If you took a partial distribution form the 401(k) and rolled the remainder into a Traditional IRA in 2015, then you would only have paid tax on the amount that you took - the part rolled into the IRA would have been tax free and yiu pay the tax now when you take it out of the IRA.

Please supply more details as to why you think you already paid the tax?
**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.**
Employee
June 2, 2019
It sounds like OP rolled over the net, after taxes withheld.
macuser_22
Employee
June 2, 2019
That would still not be paying the tax.  Withholding is not paying the tax.
**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.**
June 2, 2019

the 2015 withdrawal would be taxable to the extent that any amount was not put into an IRA within 60 days.  

$100,000 withdrawn $60,000 put into IRA within 60 days $40,000 taxable if after 60 days $100,000 taxable and the contribution was not allowed.  


if you did the IRA deposit within 60 days but paid tax on the full 401k withdrawal,  then you overpaid in 2015. if you did not extend your 2015 return, then you can no longer get a refund. if it was extended, then you have until 10/15/19 to file an amended return to claim a refund. don't wait and use a service that provides proof of delivery.  

Employee
June 2, 2019

Unclear what you actually did.  This is what was supposed to happen:

1. Withdraw from the 401k.  Any mandatory withholding is only a backup estimate, let's say 20%.  That is not the full tax you owe.  Your actual tax is computed on your entire income for the year and depends on your other income and age.  You get a 1099-R that you must report on your income tax return to calculate and pay the total amount of tax for the year.

Let's suppose you withdrew $100,000 and there was $20,000 of withholding.  If you rolled $80,000 into an IRA within 60 days, that counts as a taxable distribution to you of $20,000.  You could owe as much as 50% tax on that depending on your other income, age and state.  If you did not report the 1099-R, then your 2015 tax return was incorrect.  You were probably due a refund, if the tax was $8,000-$10,000 and you paid $20,000.  The IRS won't pay it unless you claim it in writing on your tax form.  Unfortunately, that money may be gone since it is now too late to file an amended return for your 2015 return to claim the refund.  When exactly did you mail or e-file your 2015 tax return?  If you filed late (after April 15) did you have an approved extension?

2. If you rolled the money into a traditional IRA within 60 days, then withdrew the money from the IRA, that is immediately taxable.  All withdrawals from a traditional IRA are taxable since the money was deposited tax-free.  You would have gotten a 1099-R in January 2017 that you add to your 2016 tax return.  If there was mandatory withholding, you get credit for that, and either get a refund or owe more tax depending on your overall tax situation.  If you did not include the 1099-R on your 2016 tax return, you may owe additional tax, plus late fees and interest.

2a. If you did not complete the rollover within 60 days, then all the money was taxable on your 2015 return, and you have now contributed after-tax money to the IRA in 2016.  The withdrawal in 2016 would then probably not have been taxable (or only a little) but this would require informing the IRA trustee and the IRS what you did, so they did not assume it was a tax-free IRA.

I think you need to take your 2015 and 2016 tax returns and all your 401k and IRA paperwork to a tax professional to help you straighten it out.  You might owe less than the IRS is assessing, but if you want to dispute the assessment, you have to act before the deadline in your letter.