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Here's the chain of events, not all of which I was aware of before this week:

  1. In 2010, I started working for a company and diverting money into a 401k
  2. In 2012, the company was purchased, and I elected to rollover my old 401k into the new company's 401k
  3. They accomplished this by sending me a check (made out to "Trustee of the <company 401k plan> FBO <my name>") which I was supposed to forward.
  4. Because I'm a child, I completely forgot to do this
  5. In 2014, I got a mailing from the 401k plan's abandoned property department asking if I wanted to claim the funds (since the check was never cashed)
  6. I claimed the funds, they sent me a check, and I cashed it (it's currently sitting in my savings account, as I was going to use it to move this year)
  7. This spring, I never received a 1099 to claim it on my 2014 taxes
  8. I contacted the 401k plan, and they told me they sent me a 1099 in 2012 since that's when they legally did the rollover. They emailed me a copy of that original 1099, which specifies a taxable amount of $0 since it was a rollover.

Questions:

  1. Did I do anything wrong by cashing a check made out to "trustee of <401k plan> FBO <my name>", and if so how can I fix it? I thought I was just getting a termination payout of the balance.
  2. How do I handle the taxes I owe on the payout, given that I had a tax-free 1099 two years ago and no 1099 now?
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Did I do anything wrong by cashing a check made out to "trustee of <401k plan> FBO ", and if so how can I fix it? I thought I was just getting a termination payout of the balance.

Yes, you did. It was not made to you, and you were not supposed to even be able to cash it. Both you and your bank made a mistake - you made a mistake by depositing a check that doesn't belong to you, and the bank made a mistake by allowing you to deposit a check that is not made out to you to your personal account.

How do I handle the taxes I owe on the payout, given that I had a tax-free 1099 two years ago and no 1099 now?

It was not tax free two years ago. It would have been tax free if you would forward it to the entity to which the check was intended - since that would not be you. But you didn't do that. As such, there was no withdrawal two years ago, and I believe the 401k plan is wrong to claim otherwise.

You did however take the money out in 2014, and it is fully taxable to you, including penalties.

You should probably talk to a licensed tax adviser (EA/CPA licensed in your State). My personal (and unprofessional) opinion is that you didn't withdraw the money in 2012 since the check was not made out to you and the recipient never got it. You did withdraw money in 2014 since that's when you actually got the money (even if by mistake).

As such, I'd report this withdrawal on the 2014 tax return.

However, as I said, I'm not a professional and not licensed to provide tax advice, so this is my opinion only. I strongly suggest you talk to a licensed tax adviser to get a proper opinion and guidance on the matter.

If it is determined that the withdrawal was indeed in 2012, then you'll have to amend the 2012 tax return, report the additional income and pay the additional tax (+interest and probably underpayment penalty).

  • Yeah, I'm looking for a CPA today, I suppose. Thanks for your help! – Sam Jones Apr 9 '15 at 13:40

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