My 401k was worth 10000. I made an early withdrawal of the full amount. After receiving a check minus the 20% tax taken right away I got a check for 8000. 30 days later I did not need the money anyway so A financial advisor told me to put the 8000 in a traditional ira which she then put in a Roth IRA to save me the 10% penalty. I am in a 25% tax bracket even after the 10000 is added to my taxable income. As I understand it, the only other tax liability I have on this withdrawal would be the extra 5% for federal and any state taxes that I may owe. Help would be greatly appreciated.

If you take an inservice withdrawal, I don't believe you can avoid the taxes or penalty by rolling it over.

I think I used the wrong terminology. It was an early distribution of the full amount of the 401k from a company I no longer worked for.

Did you leave the company which triggered the distribution? If you remained employed by the company then it was an inservice withdrawal. If you left the company and took a distrobution then you can rollover the amount to avoid tax and penalty. But you would have had to roll over the full $10K. Whatever you didn't roll over is taxable income and subject to the 10% penalty.

That is the answer I was looking for. I had already left the company before I took the early distribution.What brought this on was I went to h&r blockheads
Because I was not comfortable with using TTax with the 1099r forms. I handed my forms to the tax pro and was told I was getting back 1700. I get a call the next day and she said I owed about 600 because she handled the 1099r forms incorrectly the first time. Needless to say I was a bit suspicious especially when she was a little confused about the rollover. When I figured out my taxes without the 1099r forms included I would have received about 1600. From what I read,and I have read a lot, there is almost no possible way I could owe 600 in federal taxes. Looks like its 2 more hours on the phone with them! Thanks for your help.

So basically, you have to add the $2K you didn't rollover to your taxable income. At $25% you will owe $500 more. Plus $200 for the penalty. Now, if you calculated a $1600 refund without including the 1099 at all, I would gues you will be getting $1300 MORE for a total close to #3K. The reason I say this, is because the $2K in addditional income + the penalty, means $700 in additional taxes. BUT you also had $2K in additional withholding for a net of $1300

Agreed!