Did your tax preparer need to see the 5498 form, or were they able to process everything with just the 1099-R and the documentation showing the transfer/merger?

My tax preparer didn't need the 5498 form at all. She was able to process everything correctly with just the 1099-R and my documentation showing the transfer happened because of the merger. She told me that tax preparers are very familiar with this situation and know exactly how to code it properly in the tax software. The 5498 forms are more for record-keeping and verification if the IRS has questions later, but they aren't necessary for preparing and filing an accurate return.

I used TurboTax last year for this exact scenario. It definitely handles it, but you need to make sure you answer the questions correctly. When it asks about your 1099-R, there's a specific question about whether you rolled over the distribution into another qualified retirement account. Make sure you say YES to that question, and it'll treat it as non-taxable. It'll also ask you to enter the amount rolled over, which should be the full amount from the 1099-R in your case.

Thanks for this suggestion. I actually looked into the loan option with my plan administrator yesterday. They do offer loans but only up to $50k as you mentioned, and I need about $95k for my situation. I also have concerns about the repayment terms since my job situation isn't 100% stable right now. Do you know if it's possible to do a combination approach - maybe take the maximum loan of $50k and then do a withdrawal for the remaining amount I need? Would that at least minimize the tax hit compared to withdrawing the full amount?

Yes, you can absolutely use a combination approach. Taking the maximum loan of $50k and then withdrawing the additional $45k you need would definitely minimize your overall tax hit and penalties. With this approach, the $50k loan would have no immediate tax consequences as long as you make the required payments. Then only the $45k withdrawal would be subject to the pro-rata rule for determining how much is considered contributions versus earnings (and thus how much would be subject to taxes and the 10% early withdrawal penalty).

Adding to this - if your need is COVID-related, check if your plan still offers any CARES Act withdrawal provisions. Some plans extended these options. These special withdrawals allow for spreading the income taxes over three years and waive the 10% early withdrawal penalty.

How much did that third-party compensation study cost? And did you have a tax attorney help set all this up or did you DIY it? Seems like a lot of complexity just to avoid some taxes.

The compensation study cost about $3,500, but was worth every penny when the IRS came calling. I did have a tax attorney help set everything up initially - cost around $8,000 for all the documentation, agreements, and structure. Yes, it's not cheap upfront, but I've saved well into six figures in taxes over three years. It's not just about tax savings though. The structure actually makes business sense for us - the C-Corp focuses on production and operations while the S-Corp handles strategy and growth initiatives. Having the separation has helped us clarify roles and responsibilities within the company.

I'm in NY and ran into similar issues. The state was much more aggressive in challenging our management fee structure than the feds were. Ended up having to restructure everything after a state audit that disallowed most of our inter-company transactions.

That's good to know! Is there anything I can do to lower my AGI if I'm close to the cutoff? I'm currently single making around $35k, so I think I'm still under the limit, but I'm expecting a raise soon.

Contributing more to your pre-tax 401(k) is actually one of the best ways to lower your AGI! Those contributions come out before your AGI is calculated. For example, if you're at $39,000 and the limit is $38,250, contributing an extra $750 to your 401(k) would get you under the threshold. Health Savings Account (HSA) contributions also reduce your AGI if you have a high-deductible health plan. Traditional IRA contributions can reduce AGI too, but that might be limited since you participate in a workplace plan.

This explains so much! Been using TaxAct for years and they have weird descriptions for some credits. Wonder how many people miss out on credits they qualify for because of confusing descriptions.

That's really helpful advice! Would you recommend I get something in writing from a tax professional stating that my father doesn't need to file anymore? Or is my own documentation sufficient?

Your own documentation is usually sufficient. Just create a simple dated memo stating "As of [date], [parent's name] no longer files tax returns as their only income is Social Security benefits, which falls below the IRS filing threshold." Include any reference to IRS publications that support this (Publication 915 covers Social Security taxation). A tax professional's statement isn't necessary but can provide extra reassurance if you're concerned. Some tax preparers will provide a simple letter confirming non-filing status at little or no cost if you've used their services before. Just having something in your parent's financial records explaining the change helps if questions arise during future care transitions or estate matters.

Not filing taxes won't negatively impact a Medicaid application. In fact, it's completely normal for Medicaid applicants who only receive Social Security to not file tax returns. Medicaid eligibility is based on current income and assets, not on tax filing status. They'll still want to see proof of all income sources (including the SSA benefit statement), but they won't expect or require tax returns if there's no filing requirement.