Buying back Pension Credits
I have a policeman friend who took a distribution from a Traditional IRA that went directly to a policeman’s pension to buyback service credits. Brokerage Company coded the distribution as 1 – Early Distribution, no known exception. Advisor is telling me that it is non-taxable, but it seems to me if it was, it would be coded as a rollover. My question is this a non-taxable rollover or a taxable distributions?
Permalink Submitted by Alan - IRA critic on Thu, 2021-03-25 19:35
The distribution code should have been G (direct rollover). The friend could either ask for a corrected 1099R or report the distribution as rolled over on lines 4a and 4b as would also be the case with a corrected 1099R. This would eliminate the taxes as 0 would be on 4b. In either case, the friend should include an explanatory statement with their return about the rollover since the pension will not be issuing a 5498 to report a rollover contribution.