Discussion:401k distribution - no federal taxes withheld!

2) We don't know if the client conveniently forgot to tell his 'people' preparing the return, but if he never got the money that year (because it was borrowed earlier) then that might be a reason. Surely he is not stupid enough to have signed a return that omitted over $200,000, is he? If he is, he deserves the penalties.

I'm with Kevin. I have a hard time feeling sorry for this guy.

And remember if he needed that money, he would have had to take out 300K or more to cover the taxes on such a distribution [plus the 10% penalty for early withdrawal, assuming it applied].

Look at it this way: client tells custodian he wants 200K to buy a house, (I am presuming that it is a hardship distribution). Lo and behold, 200K arrives in the mail. Did he not think something wrong then? And I believe the standard withhholding on these is 20%, which would be far from adequate anyway, especially with the 10% additional penalty.

Blaming someone else seems to be our national pasttime.

Stockguy - of course it was covered - typo there... D&T - I asked the client the same question and the response I got was, "I don't remember."

THANKS!

JR1--Withholding from IRA distributions is optional but mandatory from 401(k) distributions.

So if he signed a form, and didn't request withholding, it is still his own fault.

And if he didn't give the 1099 to his tax 'people' that is further his own fault.

And if he filed a return that omitted over $200,000 in income (hoping that the IRS wouldn't check, or that by the time they caught it he could refinance his home to pay the taxes), that is entirely his own fault.

Your client does appear to want to blame everyone but himself.

Of course, the thought runs through my mind that 2005 was the heighth of the housing bubble, so buy the house and when the taxes come due, borrow on equity but that began to change a year or so later! So now, he is up the proverbial creek with perhaps a sinking house that lack a paddle.

Not to add to the bad news, and in all due respect, but on an ethical/personal responsibility front, when we as preparers try to hold someone else accountable for our clients mistake who are we helping? DT and Kevin are spot on in their advice and having your client believe (even for a moment) that there is a 3rd party responsible here is not right. Yes, some withholding would have helped but maybe just maybe he didn't give the 1099 to "people" on purpose. Nothing surprises me anymore. Reminds me of Barney Frank the other day noting "There are plenty of rich people we can tax".

As to the rollover v. contribution discussion, does the fact that it is deemed a rollover enable her to move it into the IRA notwithstanding the fact that she has maxed out her contributions this year?

Thanks