2084
Level 3

My client received a 1099 R  showing a gross distribution of $58,000.00.  He had actually taken out $50,000.00 from his IRA in October 2020 for personal reasons and made a contribution of $50,000.00 in November.  I have the Documentation.

I am saying that the Bank needs to correct the 1099 R to read gross distribution of $8,000.00 and his personal banker says that I should be able to correct it through the tax program.  I have looked through many of the worksheets available and the best I have come up with is a $3,000.00 penalty for excess contribution.  I still feel that it is the banks responsibility to correct the 1099-R but please let me know if I am wrong about this and let me know the secret to correcting this through the program.  Thanks so much for any assistance or opinions.

 

 

Labels (1)
0 Cheers
IRonMaN
Level 15

The bank did it correctly.  Check out the concept of rollovers.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?
sjrcpa
Level 15

So he really did take out $58,000?

To the bank, putting $50K back in within 60 days does not negate the $58K withdrawal.

On the tax return report as indirect rollover.

I do wonder how they are reporting the $50K on the 5498, though. Flagged as excess contribution, inviting IRS correspondence?


ex-AllStar
2084
Level 3

He is getting the 5498 form from the Bank.  Hopefully  that will help out!   Thanks for your reply.  

qbteachmt
Level 15

A 1099-R is issued for funds out. Not for how they got treated afterwards.

A 5498 is issued for funds in. Not for where they came from.

"I had told him before to take out a loan for $50,000. with the IRA as collateral but he didn't"

Why would you recommend this? I'm not sure this is pertinent, anyway

The distribution just is what it is. Code 1 means the issuer gave money with nothing specific known or certified about that distribution. It's up to the tax payer to have done something that creates any exception. And your client did that thing, if you are treating this as Rollover. That means you will enter the 1099-R as you see it, then you will identify that $50,000 of this Gross amount was rolled over.

And yes, if there is Basis, then the total of the IRA accounts are used to figure the  taxable pro rata amount against that Basis. Not just in that one account, though. You need to read the rollover regulations, enter the data, and see the computation.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
qbteachmt
Level 15

"He had actually taken out $50,000.00 from his IRA in October 2020 for personal reasons and made a contribution of $50,000.00 in November. I have the Documentation."

Did he take out $50,000 net and there was withholding, and then he only put in a contribution (which you should be able to treat as a rollover contribution) of the $50,000 net not the gross distribution?

Check the math.

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
2084
Level 3

He had previously taken out $8000.00 which would be taxable.  He then took out the $50,000.00 with no withholding and returned the $50,000.00 one month later all from the same IRA.  I am not sure what form to report this on as a rollover because it is all the same IRA. I put it in as a contribution and it came out with him owing $3000.00! I know that isn't correct.  Thanks for any help.

0 Cheers
qbteachmt
Level 15

"He had previously taken out $8000.00 which would be taxable."

Okay, then. It seems the Gross on that 1099-R is correct.

"He then took out the $50,000.00 with no withholding and returned the $50,000.00 one month later all from the same IRA."

Returned? You told us this: "He had actually taken out $50,000.00 from his IRA in October 2020 for personal reasons and made a contribution of $50,000.00 in November."

Did you want to treat this as a Rollover amount, or as a Contribution? If contribution, does this qualify as pre-tax/tax deductible? What sort of IRA is this: Traditional? Roth? Is there Basis in any account? It doesn't have to be the same one IRA account.

"I put it in as a contribution and it came out with him owing $3000.00!"

What makes you consider this to be wrong?

*******************************
"Level Up" is a gaming function, not a real life function.
0 Cheers
2084
Level 3

It is a traditional IRA   the 1099 R With box 1  $58000.  and Normal Distribution code 1. He withdrew the $50,000.  and took no withholding then one month later....

He "contributed"or put back the $50,000.00  (I had told him before to take out a loan for $50,000. with the IRA as collateral but he didn't )

I tried treating it as a contribution,  but ended up with him still owing $3000.00 as taxes.

I would like to treat it as a rollover but don't know how to do that because it isn't in a separate IRA.  I don't know the form to use or procedure to make this work.  Again thanks for your help!

0 Cheers
IRonMaN
Level 15

Look at the 1099R worksheet for rollovers.

Armpit sniffer. Yup, checked out the help wanted ads and found the job. With my nose, how can I go wrong?
2084
Level 3

Dah!!! Thanks!  My face turned red when I saw this!   I imagine that I was making this more complicated than it deserved!   My client texted me today and said that the bank was getting him the 5498....Hopefully I will have this under control.  There is a first time for everything and I may be back on here in a few days about crypto currency!   Thanks for your help!

2084
Level 3

I forgot this... His basis in the IRA account is around $220,000.

0 Cheers