My wife wanted to move the entirety of her retirement funds from one account to a new retirement account at Vanguard. This should have been a tax-neutral transaction.

She called her broker who handled her old retirement account, told him what she wanted to do, and he initiated the transfer. My wife receives a check for the total amount of her retirement account (the check is made out to Vanguard, f/b/o Wifey), and she deposits it into her new Vanguard retirement account.

Months later, I receive a 1099-R indicating that my wife received a taxable distribution for the entire amount of retirement account. For people familiar with the form, this means that Box 7 was marked "1"--"Early distribution, no known exception."

For people not familiar, that means the the distributed amount is treated as taxable income, plus a 10% penalty applied. This was not what we intended.

Both Vanguard and the prior brokerage are no help. Both are saying that there's no way to correct the 1099-R to retroactively indicate that the money was transferred to a new retirement account in a tax-neutral manner.

What form do I have to file (or even better yet, where in TurboTax can I enter the info) that reports that my wife deposited the money back into a retirement account and that net-net, no taxable withdrawal was made.

Vanguard will provide a 5498, which is just a summary statement, sometime in May, but this isn't the form that reports deposits made.

Any help would be appreciated!

You don't have to "correct" the form to be able to report this properly as having been rolled over on your 1040. If they issued a check to her instead of the rollover account the reporting you describe is correct. It's up to you to report on 1040 that you rolled over in 60 days or less.

I suspect that they also marked box 2 for Total Distribution? And they should have withheld taxes if they paid to her directly, and of course you would have to have rolled the ENTIRE balance to a new account, not just the net check amount. If they didn't withhold they screwed up, but that's on them not you.

Not sure on reporting form/box on current 1040 forms, haven't had to deal with this recently. This is a great thread for others to read to illustrate the importance of doing a direct rollover from account to account rather than first to you. The issue is (if done properly) and they pay you out on a $100K plan balance, they withheld $20K in taxes which you may not be able to recover until filing your return or through otherwise reduced withholding on wages.

But, and this is key, you have to fund the new account with the entire $100K in 60 days or you will be taxed and penalized on any amounts less than that as though you took a distribution or early distribution. Not good.

Correct, box 2b for Total Distribution is marked, as is Taxable Amount Not determined.

Box 1 Gross distribution and Box 2a Taxable amount is the same.

No witholding.

Thanks Georgeair, I think I figured it out based on what you said.

For anyone else looking, I think these are the correct instructions:

https://ttlc.intuit.com/questi...nter-an-ira-rollover

Sorry for not having time this afternoon to dig for the rest of the answer. Glad you found it and can sleep easier tonight.

Hey people - direct rollovers. It's what you want.

Georgeair has the drill down. This actually happens a lot, unfortunately, unintentional indirect rollovers. The worst part for most people is scrambling to cover the withheld 20% within the 60 days.

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Georgeair has the drill down. This actually happens a lot, unfortunately, unintentional indirect rollovers. The worst part for most people is scrambling to cover the withheld 20% within the 60 days.

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My broker explained to me that the government has grown to regret allowing people to fund tax free retirement accounts. He explained that the penalty for not taking the full required minimum distribution is FIFTY PERCENT OF THE AMOUNT. This is at age 70 and one half. Getting institutions to accept responsibilty is never easy.

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Hey people - direct rollovers

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The better term is DIRECT TRANSFERS. The money never touches your hands.

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Originally posted by ZSMICHAEL:

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Hey people - direct rollovers

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The better term is DIRECT TRANSFERS. The money never touches your hands.

Direct rollover is fine. The key is that the receiving brokerage contacts the sending brokerage and arranges the transfer. As I recall, there were forms for me to to sign, but that was the extent of my involvement after winding up the broker and turning him loose to get it done.

Assuming both accounts you are talking about are IRA’s, If the distribution was actually coded as a transfer by the delivering account then the check would be made payable to the receiving account (FBO) and it would NOT generate a 5498 by the receiving firm if they also coded it on their end as a transfer deposit.

If it was issued as a distribution by the delivering account then the check would be made payable to the account owner (no FBO designation), the 60 day rollover period would begin and the receiving firm would code the deposit as a rollover on their end and a 5498 would generate from their back office.

Accordingly you’ll get a 1099r from the delivering firm designating it as a transfer or not - paying attention to the codes often referenced on the back of the 1099r.

There is no mandatory w/h on ira distributions unlike those on 401(k)’s which have 20% required withholding, except on 401(k) rollover distributions which have no withholding because the funds are not paid the account owner but rather to the owner’s recipient qualified account FBO.

If I follow your description correctly, it sounds like one end or the other coded the distribution/deposit incorrectly.

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Well said and clear.

It’s better if you let the receiving institution handle the transfer. They make sure not to screw things up as you can pull the money out. If the broker losing your funds screws it up, he doesn’t care. What are you going to do about it; pull out your money which you already did?

I recently did this, called Schwab and was just asking what are the steps to transfer from another institution and they said, oh, just give us the details and we’ll take care of everything. Easy as pie for me.

I meant to add last night that if vanguard said they would issue a 5498 then they think it’s a Rollover.

Thanks for the replies all.

For everyone else, the absolute best advice is always initiate the transfer from the receiving institution.

This happened to me a few years ago. I did not find out until irs sent me notice. The mistake was at the bank where I closed the account. Had to go to that bank and get copy of check and send to irs. Proof of transfer within the allotted time.