ROllover and withholding
We received a call from a client that decided to complete her own 401K rollover and called us with check in hand. December 29, 2022. She explained that 20% was withheld for taxes and she did not understand why. Shes 64. Regardless of WHOS fault, our plan is to place the funds into her IRA in the next week or so, and also ADDING back the taxes withheld for a full rollover.
My question is that this overlaps 2 tax years. What year will the taxes be cleaned up? 2022 Return or 2023 Return?
Permalink Submitted by Alan - IRA critic on Mon, 2023-01-09 16:59
As long as the rollover contribution is made within 60 days this will all be reported on the 2022 1040 as a distribution and rollover contribution on lines 5a and 5b. While the IRA 5498 showing the rollover contribution will not be issued until 2024, the IRS is used to year end rollovers not being completed in the same year as the distribution. If the IRS inquires about this before the 5498 is issued, the client may need to provide a copy of the IRA statement showing the date and amount of the rollover contribution. Obviously, client should have a done a direct rollover to avoid withholding.