Disabled client recieves retirement payout, rolls it same day and looses $

[sdarave]

My client was disabled in an industrial accident. Years later a previous employer sent him a 1099R for over 20K with a 2 in box seven. When he recieved the check (which was unexpected) he immediatly opened an IRA with a broker and deposited the entire amount. Since box 7 did not have a G marked I am unable to recover much of the tax that was with held by the payer. Does anyone have a suggestion how I might help this man?

[Twin Turbo Z]

As long as it was rolled over in a timely manner. Have the taxpayer get a copy of the roll over documents from the broker (form 5498 or equivalent docs). Attach those via pdf and an explanation of the transaction to the return. On the 1099R input screen, show the taxable amount as zero.

[Dude]

wonder if he thought of just paying the tax at the current low rates. The disability allows him attach a 5329 for the disability penalty exclusion. I cant help but think President Orcazio Cortez will make a later distribution regretful.

[Twin Turbo Z]

Lord help us all if that happens.

[kathyc2]

My client was disabled in an industrial accident. Years later a previous employer sent him a 1099R for over 20K with a 2 in box seven. When he recieved the check (which was unexpected) he immediatly opened an IRA with a broker and deposited the entire amount. Since box 7 did not have a G marked I am unable to recover much of the tax that was with held by the payer. Does anyone have a suggestion how I might help this man?

If I'm reading this correctly, he put the net of the check into a new IRA, which would be less than the total on 1099R due to taxes withheld. Was this all done within 60 days? If so, the only amount that will be taxable is the difference which would be the taxes withheld. He could have made up the difference from other funds to account for the taxes withheld. But since you are likely beyond the 60 days, you can't do that now.

[Maude Lebowski]

The taxable amount would not be zero because the withholdings were not rolled over. There's no need to attach any documents to the tax return. The TP should keep proof of the rollover for his records however. Page 28 of the 1040 instructions explain how to report this type of rollover on the tax return.

Knock it off with the politics.

[sdarave]

To clarify: The disabled taxpayer set up the IRA on the very day that the check was recieved from the retirement fund. As I said earlier, he was unaware the fund even existed or a better decision might have been made regarding the dispersment. Thanks to all for the help!

[Twin Turbo Z]

The taxable amount would not be zero because the withholdings were not rolled over. There's no need to attach any documents to the tax return. The TP should keep proof of the rollover for his records however. Page 28 of the 1040 instructions explain how to report this type of rollover on the tax return.

Knock it off with the politics.

Sorry didnt read the part with fed tax withheld. But I would attach documents or you may be answering a CP2000 in the future for your client. Politics are fun !!!

[kathyc2]

Sorry didnt read the part with fed tax withheld. But I would attach documents or you may be answering a CP2000 in the future for your client. Politics are fun !!!

Not sure why you would need to attach documents or receive a CP if done correctly. If the disbursement and 1099R was 20,000 and had 4,000 tax withheld, and he used the net check to put into an IRA, the return should show 20,000 received, 16,000 as rollover and 4,000 as taxable.

[Twin Turbo Z]

Not sure why you would need to attach documents or receive a CP if done correctly. If the disbursement and 1099R was 20,000 and had 4,000 tax withheld, and he used the net check to put into an IRA, the return should show 20,000 received, 16,000 as rollover and 4,000 as taxable.

From past experience if a 1099r is received coded 2 and your filing (claiming) it as a roll over on the tax return. Then you should explain it on the return. That way there is no question on the IRS side. But hey do it as you see fit.

[kathyc2]

From past experience if a 1099r is received coded 2 and your filing (claiming) it as a roll over on the tax return. Then you should explain it on the return. That way there is no question on the IRS side. But hey do it as you see fit.

It shows as a rollover. If receiving company handles it correctly the 5498 will report that they received a rollover contribution and everything will match up.

[Twin Turbo Z]

It shows as a rollover. If receiving company handles it correctly the 5498 will report that they received a rollover contribution and everything will match up.

Yes, but original post says it was coded 2 and the man physically had the monies in hand, then deposited the full amount into an IRA. The 1099R did not show it as a roll over. Yes the company he rolled it over to should issue a 5498. But that just shows he deposited money into that new firm. It doesn't negate the 1099R (coded 2) from the original firm. Doesn't mean the IRS will disregard the 1099R based on a 5498 received from another company. And in the 40 plus years doing taxes, I have seen it all. Just like the Farmers Insurance commercials . I say its best to be pro-active and explain "on the return", the circumstances.

[Burke]

. Since box 7 did not have a G marked I am unable to recover much of the tax that was with held by the payer. Does anyone have a suggestion how I might help this man?

As FEDuke said, it would not have shown a G in Box 7 since it was not a rollover by the original custodian. Was it a payout from a 401K(?) You said he received it as a result of an industrial accident. Did it even qualify as an IRA? If you cannot recover much of the tax, then he must have had other income on the tax return with insufficient withholding, as the only amount reportable as income in this situation was the taxes taken out (if it truly qualified for a rollover.)

In the above example, $20K payout, less $4K taxes and $16K rolled over would not produce a $4K tax liability after deductions and exemptions unless other income was reported on the return which increased his tax liability. The 10% early withdrawal penalty would not apply. And, no, there is nothing you can do to change anything now -- assuming the 60-day window has passed.