[tkbowl]

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.

[ScottGem]

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

[tkbowl]

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.

[ScottGem]

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.

[tkbowl]

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.

[ScottGem]

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

[AtlantaTaxExpert]

Agreed!