Transferring money from IRA to CDs

[MikiD]

Hi everyone,

One of my clients received form 1099-R for an IRA distribution, with a Code 1 for early distribution - no known exceptions. Box 2a indicating taxable amount is same as Box 1 of total distribution, but Box 2b for "taxable amount not determined" is checked. The taxpayer is younger than 59.5, so should be subject to the 10% penalty. I asked about it, and per my client "My financial person, transfered the cash that was sitting in IRA to CDs. I didn't take the contribution and he said there wouldn't be any tax implications." If these were IRA CDs, not just regular CDs, that statement should be correct, right? I will confirm with her if these were IRA CDs.

And if they were IRA CDs, did the broker not code the distribution right for the 1099?

Thank you

[qbteachmt]

Point out the transfer first is "account type" to "account type." Then it gets invested.

So, is the money in an IRA account?

Or not?

[MikiD]

The money is in an IRA account; they deposited the funds back after about a month so this should be rollover. My question now is, how do I override the current entries in Lacerte, mostly distribution code 1 so that it shows rollover and that none of it should be taxed and eliminate the penalty? 

[dkh · Accepted solution]

Enter 1099R as received including the distribution code 1 - scroll down then to section for entering Rollover information

[MikiD]

Worked, thank you.

Do I need to include a statement, a note, or anything along those lines?

[qbteachmt]

"or anything along those lines?"

You confirmed it was Trad IRA and back into Trad IRA, which then was used to purchase CDs within the Trad IRA account?

"after about a month so"

And Rollover rules were met?

If so, then you took care of it when identifying the amount rolled over.

But I want to remind you: trustee-to-trustee transfer means no withholding required. If your taxpayer client got a check payable to them, and then redeposited it (even when it meets the timelimit requirement), was there withholding? If so, did they put back the Gross (making up the shortfall) or only the Net was the rollover?

It matters when the taxpayer had access to the funds, in other words.

[MikiD]

Yes, Trad IRA to Trad IRA, and the rollover rules were met; No withholding

Thanks