I opened a brokerage account for my 2017 Roth IRA contribution. When it was opened it was mistakenly opened as a rollover roth, which it wasn’t. To fix this I had to withdraw the contribution and reopen as a regular roth account. Start to finish this took about 2 weeks. However I was sent a 1099R form showing a taxable distribution. Do I need to declare this on our taxes? My accountant sadly retired this year. I’m doing our taxes myself using the IRS free fillable forms, but this one last thing has me stumped. Any help appreciated!
Does the 1099-R indicate a taxable amount in box 2a? Or is the box on line 2b checked, indicating “taxable amount not determined”? If it’s the former, that doesn’t sound right if everything was moved to the second account.
If the total value of the mistakenly opened account was moved to the “regular” Roth account, I would think that it would be treated as a 100% IRA rollover. In this case, you would report the amount moved from one account to the other as an IRA distribution on line 15a (1040) or line 11a (1040A), but you would report none of this as taxable on either line 15b (1040) or line 11b (1040A). As a result, nothing gets added to your AGI, and your taxable income is not effected.
Box 2a has the taxable amount. Also box 2b taxable amount not determined. From what I can tell, I should enter amount on 15a. On the IRS 1040 I can enter rollover and then 0 on 15b. I’m concerned about this affecting our financial aid. Also it was never a distribution from any type of retirement account.
How does the taxable amount in box 2a compare to the gross distribution amount in box 1?
If everything was rolled over, there should be no impact on financial aid.
It sounds like the 1099-R is documenting the rollover from the first (mistake) account to the “regular” Roth account, so in that sense it is showing a distribution from a retirement account, although if everything rolled over there shouldn’t be an amount in box 2a because it was not a taxable event.
I think I see what went wrong on my end. I closed the mistake account and took the money back to my checking account (where it had come from originally) then opened a new correct account. It was with Vanguard and they weren’t very helpful. I just figured my beloved accountant would take care of it, but he retired.
Thank you so much for your help!
Ah, so it wasn’t a direct trustee-to-trustee rollover. Yeah, that can cause problems. If you had any earnings in the brief time that the mistake account was funded, I think you will get dinged for tax on those earnings, unless you rolled them into the new account within 60 days (and maybe even then, too).
How was the rollover Roth funded? You would be taxed funding a Roth account up front. Distributions from a Roth account, whether rollover or not, wouldn’t be taxed. My guess would be it is the tax for the initial funding of the Roth account not for moving from one Roth account to another.
It was current year after tax cash from 2017 earnings that I was putting into a new 2017 Roth brokerage account with Vanguard. It was mistakenly opened as a rollover Roth. Vanguard would not correct, I took all the money out and opened a new account correctly. The entire process only took about 2 weeks, and I didn’t pursue it further because I didn’t realize my accountant would be retiring. After a lot of research, what I have done is put the amount on line 15a, the online form with IRS has a space on 15b where I put Rollover and on 1040 15b I put nothing. I was not happy dealing with Vanguard’s customer service.
The upfront tax on Roth IRA contributions comes from being taxed as regular income; a 1099-R wouldn’t be used for this purpose. A 1099-R is used for distributions from a retirement account. And distributions from a Roth IRA most definitely can be subject to tax, depending on the circumstances.
Please get a new CPA. While you might be ok with dealing with IRS questions, doing this when it matters for FA is a hassle you don’t need. “Clean and clear” up front is much better.
On an already taxed Roth contribution, done quickly, there should be little taxable, maybe nothing. But it’s the paper trail that can sink you for FA. You don’t want a situation where, after FA misunderstands, you’re trying to get them to comprehend. As it is, you’ll have a little explaining to do.
Not sure what to do. There wasn’t a distribution from a retirement account. Still Vanguard did send me a 1099R form., and their response is to contact a tax professional. Should I just leave it off and if the IRS contacts me show them the paper trail? I have to submit to IDOC so I don’t want my taxes delayed.
@lookingforward exactly! I’m trying to keep everything clean and clear. Also thought Vanguard would be more helpful.
At V, you’re probably dealing with low level bulk customer service. And they have some ethics limits on advice.
Don’t leave it off. Get a CPA. I’m dealing with a dumb mistake now (internal profits from moving my investments around, not taxable. But not reported properly for 2015.) IRS catches these things much later (my 2015 issue letter came in fall 2017. My CPA submitted an amended return. Meanwhile, it takes IRS months for the left hand to know what the right hand is doing. So I got another bill early this month. Then 2 weeks later, a response to the refiling, asking for more info. Thank my stars I have a CPA.)
And the IRS doesn’t simply politely inquire. The bill includes penalties and late fees. (Reversible, sure. But awful to look at and have to manage.)
Ugh, I’m sending my happily retired accountant an email. Hopefully he can give me some advice or a referral to a new accountant. Not sure how this got so complicated. I always try to keep things straightforward and simple.
Thanks for all help
There most certainly was. You had a retirement account open and funded. When you realized it was incorrectly opened as a rollover Roth IRA, you took all the money out. That’s a distribution from a retirement account. That’s why Vanguard sent you a 1099-R. What you did with the money that was withdrawn, and when you did it, will determine the tax treatment.
Agree with BP. By law, they’re reporting a distribution. (Similar to my issue, except I received no monies.)
This one’s why we need tax experts.