Box 7 1099-R Question - How to Fix Code 2 for Traditional IRA Rollover?
So my brother's company decided to terminate their 401k plan last year and he was forced to take a distribution. When HR asked about his plans, he mentioned possibly rolling it into a Roth IRA, so they went ahead and put code 2 in Box 7 of his 1099-R. The problem is, he actually ended up rolling the money into a Traditional IRA instead, which I think would've been code G and non-taxable if he'd told them that from the start. Now he's freaking out because his tax software is saying he owes taxes on the distribution. I told him there must be a way to fix this since he did actually roll it into a qualified account, just not the Roth he initially mentioned. How does he correct this mistake on his tax return? Does he need to get a corrected 1099-R from his former employer or is there some form he can file?
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Natasha Petrova
This is a common issue when there's miscommunication about rollover intentions. Your brother doesn't necessarily need a corrected 1099-R to fix this. Since he actually rolled the distribution into a Traditional IRA (not a Roth), he should report this correctly on his tax return regardless of what the 1099-R says. When filing his taxes, he should report the distribution as shown on the 1099-R, but then on Form 8606 (for IRAs), he can indicate this was a rollover to a Traditional IRA. The key is to make sure the amount gets properly reported as a rollover, which means it won't be taxable. The IRS is actually more concerned with where the money actually went rather than what code appears on the form. He should also keep documentation proving he completed the rollover within 60 days, as this will be important if he's ever questioned about it.
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Javier Hernandez
•But doesn't the code on the 1099-R determine how the distribution is taxed? I had something similar happen and my tax guy said the code is super important. Will the IRS computer systems flag this as a mismatch if the 1099-R says one thing but his return says another?
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Natasha Petrova
•The codes on 1099-R forms are important as they tell the initial story, but what ultimately matters is what actually happened with the money. IRS systems may flag mismatches, but that's why proper documentation is crucial. If your brother properly reports the distribution and then shows it was rolled over to a Traditional IRA on his tax forms, he can override what the 1099-R code suggests. He'll just need to be prepared to provide documentation if questioned. The actual destination of the funds determines the tax treatment, not the code on the form, though it does make things cleaner when they match.
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Emma Davis
I went through almost EXACTLY this same situation last year! My company terminated their 401k and there was confusion about where I was rolling the money. I ended up with the wrong code on my 1099-R and was beyond stressed about it until I found taxr.ai (https://taxr.ai). Their system specifically identified this issue with my 1099-R code vs where the money actually went. The analyzer told me exactly how to report it correctly on my tax return and explained that as long as I had documentation showing I completed the rollover to the traditional IRA within the timeframe, I wouldn't have tax issues. They even provided me with guidance on what specific documentation to keep in case of questions. Saved me from potentially paying taxes on money that shouldn't have been taxed!
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LunarLegend
•How does this service work? Do you upload your tax documents and it finds problems? I'm curious because my tax situation this year is a mess with a 401k rollover plus selling a rental property.
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Malik Jackson
•I'm skeptical - couldn't you just use TurboTax or talk to a tax person? How is this any different than just googling what to do?
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Emma Davis
•The way it works is you upload your tax documents and their AI system reviews everything and identifies issues or opportunities that might be missed. It's specifically designed to catch these kinds of technical discrepancies like incorrect 1099-R codes. It's actually quite different from just googling. When I was searching online, I found lots of conflicting advice and nothing that addressed my specific situation. And while TurboTax might calculate things, it doesn't necessarily identify when a document has incorrect information that needs to be addressed differently on your return. It helped me understand exactly what forms needed to be completed and how to document the rollover properly despite the incorrect code.
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LunarLegend
Just wanted to follow up - I tried taxr.ai for my complicated tax situation with the 401k rollover and rental property sale. It caught something I totally missed! My rollover had a similar coding issue but the system immediately flagged it and explained exactly how to handle it on my return. It even found a deduction related to my rental property that my previous accountant missed last year. Definitely worth it for complicated situations with investment accounts and retirement funds!
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Isabella Oliveira
If your brother is still struggling with this, he might want to try calling the IRS directly to get official guidance. BUT - good luck getting through! I spent 3+ hours on hold last month trying to resolve a similar issue. Finally discovered Claimyr (https://claimyr.com) and watched their demo video (https://youtu.be/_kiP6q8DX5c) which showed how they can get you through to an actual IRS person without the wait. They somehow got me connected to a real IRS agent in under 45 minutes when I'd been trying for days. The agent walked me through exactly how to handle my mislabeled rollover on my tax forms and confirmed I didn't need a corrected 1099-R as long as I reported the actual rollover correctly on my return. They even explained the specific notes to add to my return to prevent automatic flags in their system.
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Ravi Patel
•Wait, how does this actually work? Does someone else wait on hold for you? I've been trying to reach the IRS about a letter I got for weeks with no luck.
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Malik Jackson
•This sounds like a scam. Why would I pay someone else to call the IRS? And how would they get through any faster than I would? The IRS phone system is notoriously bad for everyone.
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Isabella Oliveira
•They use a system that basically waits on hold for you and then calls you when they've got an IRS agent on the line. You don't have to sit there listening to the hold music for hours. You just get a call when there's actually someone ready to talk to you. The way they get through faster is they have multiple lines and technology that navigates the phone tree optimally - I don't know all the technical details but it works. It's not about cutting the line, it's about having a system that handles the wait time for you so you're not wasting your whole day. I was definitely skeptical too until I tried it out of desperation.
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Malik Jackson
I can't believe I'm saying this, but I tried that Claimyr service after posting my skeptical comment. I had been trying to get through to the IRS for literally THREE WEEKS about an issue with my refund. Got connected in about 25 minutes and resolved my issue in one call. The IRS agent confirmed the exact same thing about rollovers - if you document that you did a proper rollover to a Traditional IRA within 60 days, the code on the 1099-R isn't the determining factor. You'll need to fill out Form 5498 to show the rollover was completed properly. Crazy that I spent weeks trying to get this simple answer!
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Freya Andersen
Just had a thought - does your brother still have any contact at his old company's HR or benefits department? Sometimes they'll issue a corrected 1099-R if you explain the situation. I had a similar issue with my old job and they fixed it for me once I explained what happened. Worth trying to avoid any potential headaches!
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Oliver Becker
•I actually suggested that first but apparently their benefits department has been really difficult to work with since the termination of the plan. They outsourced everything to some third-party administrator who's been giving him the runaround for weeks. That's why he's looking for a solution he can implement himself on his tax return.
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Freya Andersen
•That's unfortunately pretty common with terminated plans. In that case, your brother should definitely follow the advice about properly documenting the rollover on his tax forms. If the third-party administrator continues to be difficult, sometimes sending a very formal written request (by certified mail) specifically asking for a corrected 1099-R can get results. Otherwise, going the route of properly documenting the rollover on his return is the way to go. Just make sure he keeps all statements showing the money went from the 401k to the Traditional IRA within the 60-day window.
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Omar Zaki
Has anyone had the IRS question this kind of mismatch? I filed with something similar (wrong distribution code) a couple years ago and never heard anything. I think this is pretty common and they don't really flag it as long as you pay whatever taxes you actually owe.
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CosmicCrusader
•I had a similar situation but did get a letter from the IRS about 6 months after filing. It wasn't a big deal though - I just had to send in proof that I did the rollover properly and they closed the case. Just make sure to keep your rollover documentation for at least 3 years!
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