BG5150 Posted March 8, 2010 Posted March 8, 2010 Our Special Tax Notice reads, for distributions from a QP (no Roth contribs): "If you roll over the payment to a Roth IRA, a special rule applies under which the amount of the payment rolled over will be taxed." Do we have to w/hold on this? And would it be 20%? Is there a special 1099 R code? QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
GMK Posted March 8, 2010 Posted March 8, 2010 I found this summary useful: http://www.groom.com/media/publication/658...0For%202010.pdf
BG5150 Posted March 9, 2010 Author Posted March 9, 2010 So this looks like w/holding is voluntary on participant's part. However, it mentions the potential of having to do 2 1099-R's. This is very confusing! QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
GMK Posted March 9, 2010 Posted March 9, 2010 This is very confusing! Very! As it stands, it looks like an under 59-1/2 participant ought to have nothing withheld for 2010 unless they know for certain that they will claim the income in 2010, and not spread it over 2011 and 2012.
BG5150 Posted March 9, 2010 Author Posted March 9, 2010 This is very confusing! Very! As it stands, it looks like an under 59-1/2 participant ought to have nothing withheld for 2010 unless they know for certain that they will claim the income in 2010, and not spread it over 2011 and 2012. Yeah, but if I'm [my firm] is preparing the 1099's I think I would have to know, if the person decided to take w/holding, when the person would be declaring the income (2010 or later). QKA, QPA, CPC, ERPATwo wrongs don't make a right, but three rights make a left.
GMK Posted March 9, 2010 Posted March 9, 2010 My feeling is that since this is withholding on a direct rollover to a Roth IRA, the 10% penalty won't apply, regardless of when the taxes are paid. But that's just my sense of it. If I'm wrong, then as you say, we will have to determine if we have to issue a 1099 for the rollover portion (no penalty) and another for the withholding (indicating 10% penalty). Good luck to us in trying to get enough information from the participant to figure that one out before the 1099 deadline. At least there's some time for an official clarification for us. Participants rolling over to Roths have to decide about withholding now (on top of how they may be affected by the tax cut sunset after 2010). Personally, I'd waive withholding just to maximize the amount going into the Roth and find other funds to pay the taxes.
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