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How do I make sure that I don't owe taxes on a disbursement taken from my defined pension plan and rolled into an IRA?

I retired at 63, and chose a reduced retirement monthly payment from my pension plan. I took 20% of the pension plan and transferred it to a roll over IRA.

Feb 01, 2015 by Gilda in  |  Flag
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Gilda,

There are a few moving parts here that will all impact your tax liability. First, the fact that you are receiving a monthly income from your pension plan will cause you to have a tax liability on that income. The portion of the pension that you took in a lump sum and rolled over into an IRA should remain tax deferred as long as you are not taking distributions from it. What year did you take the rollover distribution? You should have received a 1099-R from the pension plan indicating the amount distributed from the plan and the amount that would be subject to taxes. The next question to answer is where did you establish your IRA? That firm's custodian should have issued you a form 5498 that would indicate the amount that was "rolled over" into your IRA. If the amounts on those two forms match and are for the same tax year (or within the 60 day rollover window) you should not owe any taxes.

I would recommend that you consult a CPA and a local advisor to ensure that your rollover IRA and this transaction you have described are meeting your needs.

Regards, Mark

Comment   |  Flag   |  Feb 02, 2015 from Vienna, VA

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Glenn J Downing Level 5

The reply above is exactly right. Essentially this is a matter of paperwork - that the sending firm has coded the distribution as a non-taxable rollover, and that the receiving firm has received it this way. If you effected this transaction in 2014 you should shortly have the 1099R to verify, if you don't have it already. Then you can also call the receiving firm to double-check that they've coded the funds correctly.

Comment   |  Flag   |  Feb 04, 2015 from Miami, FL

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Sean McClay Level 13

Gilda,

Just a note to make to add on to the above that are correct in my opinion. When you get the 1099-R you are going to want to make sure you file that along with your taxes as if you do not it will send up flags with the IRS. You should also receive a 5498 form but not until May that proves that you did in fact roll over your money from one tax deferred vehicle to another of the same. I would also highly recommend seeking out a CPA and advisor in your area to assist you in this matter as Mark mentioned before. Good advice is worth paying for!

Health & Happiness!, Sean

Comment   |  Flag   |  Feb 05, 2015 from Daphne, AL

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