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You moved on to a new job and rolled your 401(k) over from your old employer to an IRA.  In January of the following year you get a 1099-R form from your old employer and decide that since you rolled it over to another retirement account you do not need to report it on your tax return.


WRONG.


Your old employer sent you the 1099-R form because they are required to do so by the IRS.   It reports distributions made from your 401(k), IRA, or other pension plan. It does not mean that you will pay taxes on the withdrawal.


You are required to report the gross amount you received on Line 15a of Form 1040 for IRA distributions and 16a for all other retirement related distributions  This tells the IRS that you know you got the money, Lines 15b and 16b tell the IRS how much is taxable.  In the circumstances above you would enter zero on these lines to tell the IRS that you did not keep the money.  You will not pay any tax on this type of distribution.  The tax software programs know how to handle this transaction.


What happens if you do not report the receipt of the money on line 15a or 16a?  You will get a letter from the IRS saying that you did not report the income and calculating an obscene amount of taxes that they say is due.


After panicking, send a short letter to the IRS with a copy of the 1099-R and document the rollover into the new account.  Ask that they abate the penalties.  Please see my blog entitled Writing The IRS for tips on how to write the letter.

 

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