Distribution from Qualified Plan into Rollover Traditional IRA

[Yardley CPA]

I have a MFJ couple, husband received a distribution from his previous employers qualified plan, which represented over $3,900 in pretax contributions, into a Traditional IRA. Is form 8606 required to be filed in this instance and, if so, would it be Part 1 of the form that is completed? I don't have all that much experience with rollovers from qualified plans into an IRA account and just was wondering exactly when 8606 is required?

Any feedback is appreciated.

Thanks!

[Bees Knees]

If the 1099R box 7 code says G, then it is reported on the 1040 as a rollover. No other form is required.

Form 8606 would only be required if the taxpayer did not roll over the distribution within the 60 day rollover time limit. In that case, the deposit of the funds into the IRA would be treated as a contribution, subject to the deductible IRA contribution rules. If all or a portion of the contribution is non-deductible, then Form 8606 would be required to report the non-deductible portion and compute IRA basis.

[Tax Prep by Deb]

How would this situation be handled: My client has a traditional IRA. He switched banks so he rolled over his IRA to his new bank, but with a twist.

Because of the timing, his old bank would not do a trustee to trustee transfer. Instead they cut a check to the new bank for the total distribution, gave the check to my client who immediately went to new bank and deposited all but 3500.00 of the check into a new IRA.

Old bank issued my client a 1099R for the whole amount and coded it G, however the FMV of IRA on the new bank clearly shows 3500.00 difference. I asked my client if the new bank had issued a 1099R for the 3500.00 and was told that they would not be issuing it.

My clients distribution is subject to the additional penalty and I'm having a real tough time getting the program to show this without me chaning the code on the 1099R.

Any suggestions on how to do this?

Deb!

[kcjenkins]

Did you try putting the 3500 in the Taxable box 2?

Or just create a new 1099R from the second bank, as if he had deposited the entire amount, then immediately withdrawn the 3500, as he should have done it. It's true it will not match the 1099R's in the system, but I've never seen the IRS raise a problem about someone OVER-REPORTING income, so I doubt if he will ever hear from them about it. If he does, you then simply explain what he did, and they will be happy with that explanation.

[Tax Prep by Deb]

Did you try putting the 3500 in the Taxable box 2?

Yes, but with the code G it isn't calculating the 10% penalty.

Deb!

[Bees Knees]

I would simply split the 1099R into two. One with code G in box 7 and the amount that was rolled over tax free in box 1. The other with $3,500 in box 1 and code 1 in box 7, subject to the 10% penalty.

[LisaAnn]

I would simply split the 1099R into two. One with code G in box 7 and the amount that was rolled over tax free in box 1. The other with $3,500 in box 1 and code 1 in box 7, subject to the 10% penalty.

I agree, I've done this in the past with no problems.