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Brenda Guy
Brenda Guy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 151
Experience:  20 years of working with income and estate tax issues for families and businesses.
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My wife lost her job in February 2010 and had an outstanding

Customer Question

My wife lost her job in February 2010 and had an outstanding loan against her 401K of $43,315. In order to avoid early withdraw penalties and taxes due on the amount; we wanted to repay the loan. The original 401K was held at Fidelity Investments. In discussions with them they told us the payment would be due in June 2010. We called Fidelity in June to get the address to overnight the full repayment and were told the payment had to be made by July 17. I double checked with them because I wanted to make sure it was the correct date and they confirmed this. This is all recorded on a recorded line at Fidelity. It turns out the Fidelity Rep was mistaken as he was looking at my wife’s pension roll over account also held by Fidelity, which had to be rolled over in July. The loan was due in June and we therefore paid it off late when we made the payment in July.
Fidelity is telling us not to worry. I just got the 1099 and it is coded 1 in box seven for early withdrawal. When I spoke to them they said they would be issuing a form 5498 after April 15th showing the contribution as a roll over. My business tax advisor doesn’t think this is going to work and that I am going to get a letter demanding payment of the penalty and taxes. I am wondering what you think?
Submitted: 5 years ago.
Category: Tax
Expert:  Richard replied 5 years ago.

Good morning. Having been the former administrator of our 401k plan at our law firm that was held by Fidelity...I will tell you I think you have nothing to worry about. Fidelity does make mistakes, but when they do, my experience has always been that they make things right. These kinds of mistakes get made and Fidelity and other similar entities are experienced in remedying the problems. Just stay on top of this, and I feel sure Fidelity will get this taken care of for you. It is, after all, not entirely simply their customer service the end if this doesn't get fixed, they are going to be liable for your damages resulting from their mistake.



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Customer: replied 5 years ago.
So technically what would I do on the 1040, not enter the 1099 or offset it somehow with an entry showing a contribution via the form 5498, and where would I do that? Or should I seek to get Fidelity to correct the 1099?
Expert:  Richard replied 5 years ago.

I would ask Fidelity to issue you a corrected 1099 so that you don't even have to deal with the IRS on this issue. Failing that, i would demand that Fidelity provide me a letter of explanation so that you could attach it to your return explaining why it is not an early withdrawal.

Customer: replied 5 years ago.
I am sorry but you are not really providing me with any more information than I already have...Fidelity is reluctant to reissue the 1099, I want to know about how the form 5498 is entered and if I use this can I expect a letter from the IRS>
Expert:  Richard replied 5 years ago.
I'm sorry. I will opt out and let someone else help you. Take care.
Expert:  Brenda Guy replied 5 years ago.

Hi, I will try to pick up this question.

As far as the 5498- you do not enter that anywhere on the tax returns. It is just information reporting.

As far as the 1099 showing early withdrawal - report it on the tax return and show that it is not taxable. You may generate some correspondence. But it sounds like you have a reasonable story and should not have any tax, penalties or interest to deal with when it is all done

I also agree with the previous consultant. Getting Fidelity to issue a corrected 1099 would eliminate any issues with the IRS.

Brenda Guy, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 151
Experience: 20 years of working with income and estate tax issues for families and businesses.
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