1099-R

Good morning,

At the end of 2009 I requested a direct rollover from TRowePrice to Fidelity (to simplify things as I will be retiring in 4 years). Box 7 of the 1099-R was marked "G", referring to a "distribution that was directly rolled over to either a traditional IRA, a charity, or another qualified plan" (TurboTax).

Box 2a shows an amount of $28,823 and box 5 (employee contribution, etc.) shows $4,889. When I satrted working at the company in 1988, thy did not have a 401K yet and retirement contributions were after-tax contributions. I thought that in the case of a direct rollover, box 2a should have been zero. Not so according to TRowePrice. As we are dealing with after tax contribution (and I presume the corresponding gain of $28,823 over a 21 year period) I am now hit with approx. $3400 of Federal tax on this activity. I did not receive ANY money from the transaction and nothing went to my bank account

The regular 401K amount (to which the company switched around 1990) was rolled over to a Rollover IRA. The after tax amount was put in a Roth IRA.

Assuming I can't get out of paying Federal tax on this, is there anything that needs to be done to avoid being taxed on it again when I do start taking money out? TRowePrice indicates I filled the distribution form out incorrectly (which is possible, provoking the taxable amount of $28,823 - although I did not receive any of this money physically and the entire rollover transaction between Rollover IRA and Roth IRA are intact at Fidelity the same way they left TRowePrice).

Sorry to be longwinded - your advice will be appreciated. Thanks.

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Reply to
Carioca96
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I can't tell what happened here because I have no idea what type of plan got rolled into what type of plan. However, I can tell you that a trustee or plan administrator can not issue a 1099-R with a G coded in Box 7 and anything other than a zero in Box 2a. Code G by definition means that the distribution is tax-free as it was a direct rollover. If some part of a rollover is taxable, the trustee should have issued two 1099-Rs: One to account for the tax-free rollover and one to account for the taxable distribution.

I will also point out that all of the tax-free rollover scenarios have one basic underlying assumption: you are dealing with qualified retirement plans at both ends of the transaction.

Reply to
Alan

SNIPPED to save bandwidth

You did NOT tell us what was in Box 1 and that would be helpful.

IN GENERAL - when you do a transfer such as you describe you're moving untaxed money from one trustee to another and there is NO tax or penalty due.

In your case though, you've moved money that was partly after tax along with some pre-tax money and for some reason they seem to be taxing you on the gain associated with the after tax contribution. This is VERY ODD - since that too should be tax free if it was simply moved from one trustee to another. The after tax contributions can become taxable IF you actually take them in cash when you transfer the deferred money, but that does not sound like what you've done.

Sadly, I don't mean to sound preachy, as a tax pro and financial advisor I see this kind of stuff all too frequently. Almost always associated with someone who did their own investing and taxes because they wanted to save money and not pay any fees. While I appreciate the desire to be frugal with one's money, the short term savings frequently turns into a longer term painful bill to fix it.

At this point about the only way you're going to get this straightened out is to either get a tax and/or financial professional to look over what you've done and tell you how to fix it OR pay the tax. Either way, its going to cost you money (and like more than if you had been working with a pro all along).

Without knowing the details and your specifics, I don't see how anyone could tell you what should happen on the back end so as to not pay tax later. In theory you don't have to pay tax on the same money twice - after tax contributions have already been taxed so you only pay tax on the gains when you take that money out. This usually requires a Form 8606 to report your basis in the after tax contributions in an IRA.

You really do need professional help now - sorry, Gene E. Utterback, EA, RFC, ABA

Reply to
Gene E. Utterback, EA, RFC, AB

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