I have a 401k. I did a rollover to a Roth Flex. I took a distribution and put the rest into a CD?

Question

I paid my 10% on that distribution at the time I took it out 12/06. Do I need to complete a 8606 or 5329??
Also, A SEP or Simple IRA is not a 401K correct?

Answer 1

Did all this happen in the same year? I assume so. You do not have a SEP or SIMPLE so disregard those terms in the forms.

When you moved your money from the 401k to a Roth IRA, you had to first transfer it to a regular IRA. When it was converted to a Roth IRA the money is taxed as ordinary income. When it is distributed you will pay an additional 10% penalty since the money was not in the account for five years, even if the Roth was in existence before you put the 401k money into it (see Pub 590).

You will receive three Forms 1099R

1. For the rollover of the 401k to the traditional IRA.
2. For the conversion of the traditional IRA to the Roth IRA
3. For the distribution from the Roth IRA.

You need Form 8606 Part II for #2, Form 8606 Part III for #3. Since penalty applies to your Roth distribution, you will also complete Form 5329.