How to reconcile incorrectly coded 1099-R’s for your Self-Directed Solo 401(k).
Updated: Apr 23, 2021
Since Self-Directed Solo 401(k)s allow for after-tax contributions that accrue tax-deferred gains/earnings, reporting issues for distributions could arise…
If you have contributed after-tax funds to your Self-Directed Solo 401(k) retirement account at your brokerage firm, that has accrued deferred taxable gains/earnings and you receive one 1099-R for the distribution, as if all of the assets have the same tax-deferred status, there is a way to reconcile the reporting of the capital gains and taxes withheld with the IRS.
Per Notice 2014-54 Guidance on Allocation of After-Tax Amounts to Rollovers - Section IV: “Even though certain multiple disbursements to different destinations are treated as a single aggregated distribution under the first paragraph of section III of this notice, each disbursement may be required to be reported on a separate Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., in accordance with the Instructions to Form 1099-R."
If the brokerage firm gives you one 1099-R for multiple distributions, it makes it difficult to report the distribution's capital gains and taxes withheld on your tax return. To help report these properly, you should first reach out to the brokerage firm and try to get them to give you two 1099-Rs to separate the after-tax basis from the tax-deferred gain/earnings in order to show the capital gains and taxes withheld correctly. If they are unable or unwilling to do this, you may call the IRS (800-829-1040) to see if they can help you. They will ask for the following information when you call:
Your name, full address, phone number, taxpayer identification number, and dates of employment,
Your employer/payer's name, full address, and phone number,
If known, your employer/payer's identification number.
The IRS may then contact the brokerage firm for you and request the updated forms. If you don't receive the updated 1099-Rs in sufficient time to file your tax return, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. to report your estimated capital gains and taxes withheld.
*You will need to retain a copy of this Form for you records.
The IRS will send you Form 4852, along with instructions, when you request their help. You can also download it here.
If you receive the updated Form 1099-R after your return has been filed, and the information differs from your estimates, you must file Form 1040-X, Amended U.S. Individual Income Tax Return (PDF). For additional information on filing an amended return, see Topic No. 308 and Should I File an Amended Return?