I left my company last year and promptly rolled over all of my 401(k) *directly* to an IRA. I've done this several times before. I almost had a heart attack when I got a 1099 from them reporting 28% of it as a "Taxable amount". I surely intend to talk to them on Monday, but in the meantime I'm in a panic and would like to get opinions. The strange thing is that it's not all taxable, even though I took one distribution. I could see it if they didn't think I'd had rolled it over to a qualified retirement plan, but they obviously think I did, since it's not all taxable. My dad thought he had run into this before and said some code on the W-2 indicates it's non-taxable, but I don't see anything on there, and why would it say "taxable" in black and white only to be reversed by a secret code on the W-2? So any theories on what happened? Could this be legit? Or is this just an administrative error?
2007-01-20 08:05:15 · 8 answers · asked by ? 4 in Business & Finance ➔ Taxes ➔ United States
I rolled it over directly (hence why I said *directly*), and the check was NOT made out to me. Otherwise, the whole distribution would have been taxable, which was my point. I was very careful about this.
2007-01-20 08:49:08 · update #1
Nope, no loan -- good guess though.
2007-01-20 11:51:17 · update #2
I discovered a clever way to get an answer: I entered the 1099-R form into TurboTax to see what it would do. It showed no tax due. Now the question becomes, why, and if the amount on 2a is not the true taxable amount, what is it?
2007-01-22 00:17:06 · update #3
They determined it was an error. I am relieved. Thanks for your help.
2007-01-26 07:32:38 · update #4
I bet there's 5 wrong answers above me, today!
You MUST get a 1099-R when monies leave a retirement account of any type.
My hunch is that there is an amount in box 1, a lesser or zero amount in box 2A and a code in Box 7. In the case of a rollover, Box 2A should be 0 and box 7 should be a G.
If you see an amount in 2A, and perhaps a 1 or 1A in Box 7, based on what little you've told above, I would think that you MAY have had a loan against your 401k at the time you left the employer.
If you DID have a loan outstanding, and you did not pay the loan back IN FULL upon termination, the short amount is TAXABLE INCOME and subject to not only tax, but the 10% penalty, to boot!
This is one of the big risks of 401k loans.
If you didn't take out a loan, then I'd be hard-pressed to guess why there would be an amount in Box 2A.
Tax Advisor
EDIT: If there was no loan and 100% was rolled over, Box 2A should be ZERO and Box 7 = G. Anything else needs to be re-issued.
2007-01-20 10:19:06 · answer #1 · answered by WealthBuilder 4 · 0⤊ 0⤋
I was also wondering if you had a loan against your 401(k) that was offset. If this is the case, there should be another code in addition to Code G. You can check the IRS website and look at the 2006 1099 instructions for the codes and what they mean. Also to clarify, the 10% penalty is not withheld at distribution. You are responsible for this when you file your taxes. It is an excise tax. If you rolled over 100%, then you are exempt from this penalty. Another thing, 20% is the mandatory withholding from retirement plan cash distributions. An individual can elect a higher withholding at the time of their distributions.
2007-01-22 14:43:39 · answer #2 · answered by ajillity 3 · 0⤊ 0⤋
When you left your company and the 401(k) was distributed to you, was the check cut and mailed to you, or did you instruct your employer to distribute it directly to your IRA administrator in a direct rollover? If they cut the check to you, they (the company) has no idea what you did with the money. You could have "said" that you rolled over the money into an IRA, or you could have used the money in a nice shopping spree at Nieman Marcus. They have no way of knowing. All they know is that if the check is written to you, it must be treated as taxable and at the very least, would have withheld the 10% penalty.
2007-01-20 08:21:58 · answer #3 · answered by jseah114 6 · 0⤊ 0⤋
Who knows? It could be an error. If the rollover is "clean" (check issued to the IRA financial institution) then you have nothing to be concerned about. See if you can get a cleaned up 1099. Otherwise, check with your tax adviser and if you get an "OK" then don't report anything as taxable income. The IRS will eventually match your return with the 1099 and bill you for the taxes, interest and penalties, which you can rebut. Some tax advisers suggest you anticipate this and file a statement with your return. Its your call. Either way if it is a clean rollover you have nothing to worry about.
2007-01-20 08:15:16 · answer #4 · answered by Flyboy 6 · 0⤊ 0⤋
Appears that there was some mix up. Maybe because some of that money was not taxable. You normally cannot roll over already taxed money into an IRA with untaxed money. Did you have your employer send you a check for the non taxable amount and then have them do the Direct roll over on the balance to your new IRA??
2007-01-20 08:13:28 · answer #5 · answered by Brick 5 · 0⤊ 0⤋
If you took a distribution, that amount is taxable and if you are under 59 a penalty also applies. You may have to request an amended 1099 from your former employer.
2007-01-20 08:14:50 · answer #6 · answered by david42 5 · 0⤊ 0⤋
Does the amount include the 10% additional penalty for withdrawals before age 59 ?
And if you rolled it to a Roth, it's taxable !
2007-01-20 08:14:21 · answer #7 · answered by kate 7 · 0⤊ 1⤋
This looks like an error on their part.
Call the trustee and see if they will fix it.
Unfortunately, most brokerages run on these two rules:
Rule #1) We don't make mistakes
Rule #2) In case of mistake, see Rule #1
If they won't fix it, you should be able to fix it when you file your return using form 8606.....I think
Good luck.
2007-01-20 09:21:20 · answer #8 · answered by Wayne Z 7 · 0⤊ 0⤋