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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: early distribution Date: 3/30/1999 11:28 PM
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[[ I am currently on total disability. I took out 162k out of my 401k and rolled it
over to American Express.
I decided that I did not want to stay with American Express but go with
Vanguard. American Express told me that I could roll over that money to
another Ira. I was not told about any taxes on this money.
When I went to my tax person they looked at my distribution from American
Express and said it was listed as a code 1 on the 1099 form which means I will
be taxed on the full amt. I tried to have American Express change the code but
they said they cant do it. They said to call my ex Employer to see if they could
change their code. They said they could not. This is just a total nightmare I did
rollover 140k to Vanguard and kept 22k to pay bills which I knew I would have
to pay taxes on. Is there way out of this mess.]]

Sorry, but I'm not sure exactly what happened here. If you "rolled over" your 401k funds to an American Express IRA (hopefully via trustee to trustee transfer), there should be no tax on that rollover. If you then (again, hopefully, via trustee to trustee transfer), rolled these funds again to Vanguard, there should also be no tax.

If you "rolled" the funds by receiving a check payable to you, you may be in violation of the "once every twelve month" rule for rollovers, and may have a very large probelm, in the the entire amount may now be taxable.

With respect to the $22k that you kept out, you will certainly be liable for taxes (and penalties...unless you are age 59 1/2 or older) on those funds.

But you might want to take all of the paperwork to a tax pro that is versed in these matters. You may not have as many problems as you think. In the meantime, you might want to read IRS Publication 590, which will explain much of what you are asking about.

TMF Taxes
Roy

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