The Internal Revenue Service knows that mistakes happen and it has a special form -- the 1040X -- designed just for correcting errors. So, forgetting to report your retirement plan withdrawal isn't the end of the world. The faster you catch and correct the error, the less you'll owe in additional interest and penalties.
Amending Your Return
As soon as you discover your mistake, file Form 1040X with the IRS to amend your return. This applies even if your withdrawal isn't taxable -- such as a Roth IRA withdrawal after your account has been open for five years and you're over 59 1/2 years old -- because you still have a reporting obligation. If the distribution does count as taxable income, you'll need to pay the additional taxes when you file the amended return. If you can't pay the full amount, you can request an installment agreement with the IRS so that you pay the balance over up to 72 months -- but you'll pay interest on the unpaid portion.
If you're changing your retirement income, you need to complete lines 1 through 22 on the Form 1040A. In column A, enter the amounts from your original return. Column B reports the changes and Column C reports your new totals. You also need to attach a statement explaining the reason for the change. For example, if you forgot to report a $7,000 taxable IRA withdrawal, enter $7,000 in column B of line 1 and attach a note explaining what the $7,000 is from. In addition, if you took a withdrawal when you were under 59 1/2, it's not qualified so you need to attach Form 5329 with your amended return.
Interest and Penalties
If you submit your amended return before the tax filing deadline, you won't owe any extra taxes or penalties just because you skipped your retirement income the first time you filed. For example, say you filed your 2012 tax return in February 2013 and then in March realized you forgot your retirement withdrawal. If you file your amended return before April 15, 2013, you might owe more in income taxes because of the withdrawal, but you won't owe any taxes or penalties. If, on the other hand, you don't get the amended return submitted by your original filing deadline, you'll owe interest on the extra tax due plus penalties.
If you're amending your federal return, chances are you need to amend your state return as well to include your retirement income. Typically, your state requires you to send along your amended federal return and an amended state return. Obviously, if you owe additional state taxes, you must pay those as well when you file the amended return.
- Internal Revenue Service: Topic 308 -- Amending Returns
- Internal Revenue Service: Form 1040X Instructions
- Internal Revenue Service: Form 5329 Instructions
- TurboTax: Amending Your Income Tax Return
- Internal Revenue Service. "Instructions to Form 1040X," Page 3. Accessed Jan. 6, 2020.
- Internal Revenue Service. "Instructions for Form 1040X," Pages 7-8. Accessed Jan. 6, 2020.
- Internal Revenue Service. "Instructions for Form 1040X," Pages 8-9. Accessed Jan. 6, 2020.
- Internal Revenue Service. "Form 1040X," Pages 1-2. Accessed Jan. 10, 2020.
- Internal Revenue Service. "Amended Returns." Accessed Jan. 10, 2020.
- IRS. "IRS announces Form 1040-X electronic filing options coming this summer; major milestone reached for electronic returns." Accessed July 9 2020.
- Internal Revenue Service. "Instructions for Form 1040X," Page 7. Accessed Jan. 6, 2020.
- Internal Revenue Service. "Instructions for Form 1040X," Page 3. Accessed Jan. 6, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."