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Form 1099r shows a gross distribution of $125,807.00 with a…

Form 1099r shows a...

Form 1099r shows a gross distribution of $125,807.00 with a taxable amount of $20230.87...tax with held of 2125.00. Line 5 shows $105,576.35. Using our H&R block software, the $105,576.35 was added as income. Distribution codes of 7,D. Should this amount be included as income?

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Answered in 1 minute by:
3/27/2018
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
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Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Code 7 is a normal distribution from a tax deferred account. Therefore, yes, if the funds were not timely rolled over into another tax deferred account the amount would be added to your ordinary income and taxed.

Please let me know if this has answered your question or if you have any additional questions.

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Customer reply replied 3 months ago
the code "d" also appears after the 7.
The $105.576.35 appears on line 5 -Employee contribution/Designated Roth Contributions or insurance premiums

"Use Code D for a distribution from any plan or arrangement not described in sections 401(a), 403(a), 403(b), 408, 408A, or 457(b)."

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The employee contributions are amounts that have yet to be taxed and were distributed to you. Therefore, when you distribute the funds, the funds become taxable at your ordinary income tax rate.

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Customer reply replied 3 months ago
Don't know what that means...please explain

That means, your H and R Block software is correct.

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The amount of $105,576.35 represents an amount that you have not yet paid taxes on.

When you take the funds out of the account, that amount becomes fully taxable.

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Customer reply replied 3 months ago
If the taxable amount is less than the gross distribution on the form 1099R...seems odd. We work a large financial services company and I don't think our rep would move money without considering our tax situation. Is there something I'm not explaining.?

When the taxable amount is less than the gross distribution, that means you have a post tax cost basis in the account.

I would hope that your broker would have recommended you speak with a tax advisor before incurring $105K tax liability.

Did you roll the funds over to another tax deferred account?

Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,607
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
Verified
Chad EA, CDFA®, CFP® and 87 other Tax Specialists are ready to help you
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Customer reply replied 3 months ago
will call financial advisor. Thank you

If you rolled the funds over into another tax deferred account within 60 days, then the $105K would not currently be taxable.

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