Wednesday, March 14, 2012

Reportable but not Taxable

Q.  Honey, I just received a 1099-R and I don't understand why I received this. I rolled over a small 401K plan into an IRA, isn't that a tax free transaction?

A.  Yes, the transaction you descriped is tax free, but it is a reportable transaction. I'm guessing that there is an amount in box 1, no amount in box 2, and a "G" in box 7. This is how a tax free rollover is usually designated. On your tax return, all 1099s need to be reported; but it doesn't mean it's taxable. Here is a link to the Instructions for 1099 Forms. Note the various codes used for Box 7 on page 9 of the instructions. The IRS computers match all 1099 forms. This is why they must be reported on your tax return.

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