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Old 02-21-2011, 04:17 PM
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401(K) Indirect Rollover

Someone I know made an indirect rollover from a 401(k) plan. He took the distribution in December 2010. The 1099R shows the total distribution as well as the taxable income and taxes withheld. However, by February 2011 (within 60 days) he rolled over his distribution into an IRA account. Since the IRS will see the taxable amount for 2010 as the total distribution, should I file the 2010 return with just the information from the 1099R, or, since I have the receipt for the rollover into another account and it is within the 60 days, should I adjust the taxable amount by the amount rolled over on the current year return?



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Old 02-22-2011, 06:24 AM
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“should I file the 2010 return with just the information from the 1099R, or, since I have the receipt for the rollover into another account and it is within the 60 days, should I adjust the taxable amount by the amount rolled over on the current year return?”---->I guess it depends; as the company made the check out to you, it is required to withhold 20% for taxes. If you are keeping your money in a new traditional IRA, you will have to come up with the missing 20% or you will get hit with an income tax bill on the distribution plus a 10% penalty on the withdrawal if you are under age 59 ½(UNLESS you contribute all of the distribution money from 401K into the IRA). You won't get the withheld money back until you file your taxes the following year. However, if you arranged for a “direct” rollover which is also known as a “trustee to trustee” rollover within 60 days, then you can avoid the 20% tax . The distribution check from your old 401k retirement plan must be made out in the name of the trustee or custodian of the new IRA account that you want to receive the funds. You can ask your bank or brokerage house that handles your new IRA for specific instructions on how the check should be made out.


Last edited by Wnhough : 02-22-2011 at 08:11 AM.


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Old 02-22-2011, 09:32 AM
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I guess it depends; as the company made the check out to you, it is required to withhold 20% for taxes. If you are keeping your money in a new traditional IRA, you will have to come up with the missing 20% or you will get hit with an income tax bill on the distribution You won't get the withheld money back until you file your taxes the following year. However, if you arranged for a “direct” rollover which is also known as a “trustee to trustee” rollover within 60 days, then you can avoid the 20% tax . The distribution check from your old 401k retirement plan must be made out in the name of the trustee or custodian of the new IRA account that you want to receive the funds. You can ask your bank or brokerage house that handles your new IRA for specific instructions on how the check should be made out.[/quote]

No, direct rollover here. To be more specific the taxable amount withdrawn was $37K, of which 8K was withheld on 12/28/10. The amount deposited in a rollover IRA on 2/1/11 was $25...so it wasn't the full amount of the distribution. Should I report the $37K in 2010, or should I report $12K of taxable income in 2010 ($37K-$25K)? Am I to report it as a regular tradional IRA deduction in 2011, and that is where the taxes that were withheld will be recupped?

So, I understand what you are saying about coming up with the missing 20%, but only a partial amount of the funds were rolled over anyway.



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Old 02-22-2011, 11:15 AM
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“ Should I report the $37K in 2010, or should I report $12K of taxable income in 2010 ($37K-$25K)?”--->You should report $12K of taxable income in 2010. As long as you want to roll the funds into the IRA and avoid taxes, you should contribute the whole $37K even though you only received $29K( UNLESS you want to roll over part of your 401k into the IRA)
“ Am I to report it as a regular tradional IRA deduction in 2011, and that is where the taxes that were withheld will be recupped?”----> You'll get that $12,000 back when you file your taxes. It will show up in box 4 of the 1099-R you (and the IRS) will get detailing your withdrawal. You'll count that withheld amount on your return and, depending on your other tax payments, will come back to you as a refund or be applied toward the overall tax bill that you owe.
“So, I understand what you are saying about coming up with the missing 20%, but only a partial amount of the funds were rolled over anyway.”----> Unless the whole distribution from 401K, $37,000, is contributed into the IRA, $12,000, not contributed to the IRA is your taxable income to you and subject to a 10% penalty.



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