How to get ProSeries to treat a missed deadline on an IRA rollover as taxable

[hibbert]

I have a new client who changed jobs, opted to rollover her IRA, took the IRA distribution in the form of a check made out to her, then did not deposit it in a new IRA/retirement plan within the 60 day window.  She does not qualify for any of the exceptions.  She spent the money.

Previous employer issued her a 1099-R with Code G in Box 7.  I wanted to clarify that I am "breaking" the 1099-R correctly.  Let's say she was distributed $50,000:

1. I entered the $50,000 in Box 2a (taxable amount) instead of the blank that the form showed.

2. Instead of Code G, I entered Code 1 in Box 7.  

This seems to have correctly calculated both the tax on the distribution itself AND the early withdrawal penalty.

I alternatively played around with the "Early distribution .... but no code 1" box but it did not seem to calculate the early penalty AND it created an unfixable error in Box 7.

I appreciate any help, I get nervous the first time I try to back door solutions in ProSeries.

[Just-Lisa-Now-]

Id ask to see the actual statements of whats occurred, for them to put a G in Box 7, that sounds like a check was NOT issued but was a direct trustee to trustee transfer.

People dont always remember the details correctly.

[qbteachmt]

I would also confirm the type of Plan/Account:

"I have a new client who changed jobs, opted to rollover her IRA, took the IRA distribution in the form of a check made out to her"

Changed Jobs, seems like a 401(k). Perhaps the 401(k) plan administrator had her fill in a form, and she indicated it would be going to an IRA, but it is from a 401(k).

[hibbert]

You are likely right that it is a 401(k). It's very odd.  She showed me the bank statement with the money coming in.  They also did not withhold the customary 20%.  Either way, she missed the 60 day window.  I may need to dig into whether the previous employer made an error that would get us an exception.

[qbteachmt]

"She showed me the bank statement with the money coming in."

Coming in? Or, she Deposited it? Account Type matters; statements are for all sort of accounts and activities.

"They also did not withhold the customary 20%."

If it was Direct, they don't have to. If it was payable to her, it should have stated "IRA" in Payee name or FBO. FBO Jane Doe IRA.

"Either way, she missed the 60 day window. I may need to dig into whether the previous employer made an error that would get us an exception."

Well, now...She Spent the money. I think the employer is out of the picture, now.

Here's where I still find it confusing. You stated:

"opted to rollover her IRA,"

That's event #1.

"took the IRA distribution in the form of a check made out to her"

That's event #2.

If the employer sent the funds to the IRA account (401(k) rollover) and then she took a distribution from her IRA account (check in hand), sure, she took the action that now is taxable + penalty.

If, however, you described it wrongly and there is 1 event, then it is moot. She spent the money; you pay the taxes and the penalty. You hopefully had some fun.