lied to again with a recording to prove it

[windchime]

What is the name of your state (only U.S. law)? Florida
We took what they called a hard ship withdrawal from our account. Not something I wanted to do, but when my husband spoke with them on the phone which was recorded they told us we could do it without paying a penalty or tax on it. Of course I didn't believe it but the person we spoke with insisted there would be no tax and no penalty. Well that was wrong. We got our 1099r code 1 which means its taxed and has a 10% penalty. I called them and explained what we were told before taking the money. They didn't believe me and said they would listen to the voice recording. Well they called me back and agreed we were told the wrong information and offered to give us $100 off our accounting fee. Since this money is going to cost us about $5,000 in taxes and penalties I told them I want a copy of this recording and once I listen to it I will tell them what I decide. I just got an email telling me they will not let me hear the recording but I can call them and they will talk to me about it again. My question is can they record our phone conversation and refuse give us a copy it or let us hear it because it proves they were wrong. Also is there anything I can do about being lied to for the second time?

 

[Shadowbunny]

What is the name of your state (only U.S. law)? Florida
We took what they called a hard ship withdrawal from our account. Not something I wanted to do, but when my husband spoke with them on the phone which was recorded they told us we could do it without paying a penalty or tax on it. Of course I didn't believe it but the person we spoke with insisted there would be no tax and no penalty. Well that was wrong. We got our 1099r code 1 which means its taxed and has a 10% penalty. I called them and explained what we were told before taking the money. They didn't believe me and said they would listen to the voice recording. Well they called me back and agreed we were told the wrong information and offered to give us $100 off our accounting fee. Since this money is going to cost us about $5,000 in taxes and penalties I told them I want a copy of this recording and once I listen to it I will tell them what I decide. I just got an email telling me they will not let me hear the recording but I can call them and they will talk to me about it again. My question is can they record our phone conversation and refuse give us a copy it or let us hear it because it proves they were wrong. Also is there anything I can do about being lied to for the second time?

Since the above doesn't make any sense on its own, I"m assuming you have another thread about this issue. It's easier for people to advise you if you keep all your comments/questions/updates in a single thread, instead of creating multiple threads.

 

[Chyvan]

offered to give us $100 off our accounting fee.

You should take it. They don't owe you anything. For the same reason that a tax preparer can royally mess up your taxes, you are the one that is ultimately liable.

Since this money is going to cost us about $5,000 in taxes and penalties

You were going to owe the taxes anyway so that's in no way a relevant factor. As to the penalty, would you have done anything different if you knew that you were going to have to pay it? If not, you're no worse off. I vaguely remember that hardship withdrawals can't be rolled over, but still, if you don't want to pay the penalty or taxes, you can try to see if you can't redeposit the funds into your 401K or maybe it really can be rolled over, and you can mitigate or eliminate your tax liability. Then again, the 60-day window to do anything might be long over.

I told them I want a copy of this recording and once I listen to it I will tell them what I decide.

There's really nothing to decide and hearing the recording won't change anything. Take the $100. It's very nice of them to do that.

My question is can they record our phone conversation and refuse give us a copy it or let us hear it because it proves they were wrong.

Yes, and while they were wrong about the penalty, it doesn't matter.

Also is there anything I can do about being lied to for the second time?

Hard to say that it was a lie. You were taking tax advice from someone that didn't have a clue. That doesn't rise to the level of a lie. That's just you putting your trust in the wrong person.

 

[OHRoadwarrior]

I concur with previous assessments. You are never advised to take financial advice of this type from anyone aside from IRS publications or a professional tax preparer.

 

[windchime]

We had planned on taking this in the next tax year which would have left us in a much lower tax bracket for the 2015 taxes. Also the 10% penalty can be waved if the medical bills are more than 10% of your income. They were before this extra money was added to our total so now I cant even right them off. I don't see how it can be put back, it was taken in 2015 and we already have a 1099r for it.

 

[OHRoadwarrior]

There is a rollover window of 60 days which you could have used to determine the accuracy of the info and reinvest it into another plan. That period has expired.

 

[windchime]

Hard to say that it was a lie. You were taking tax advice from someone that didn't have a clue. That doesn't rise to the level of a lie. That's just you putting your trust in the wrong person.

I really wasn't taking tax advice. When we take money from this account they automatically withhold the tax, and tell us there would be a 10% penalty. But in this case they didn't because they said it was not taxable income and that the 1099r would show a code for that.

 

[I'mTheFather]

Still, the person who told you that was mistaken, not lying. Really, why would someone do that intentionally? You also acknowledged in your first post that you didn't believe the person was right, but went ahead anyway without verifying. You don't really have much of a defense, unfortunately.

 

[tranquility]

I assume you're talking about an employer sponsored plan like a 401(K), correct? If so, there should be a stated policy for hardship withdrawals with specific rules on how to document it. Since medical bill is in many plans as a hardship under certain circumstances, it seems likely you may qualify for the hardship withdrawal and not have to pay the penalty for an early withdrawal. Did you provide the necessary documentation to the plan trustee per your company's stated policy to show a medical hardship for the withdrawal? If so, they should change the distribution code and amend your 1099.

Of course, that will not absolve you of the tax on the funds received.

There, it really does not matter what they told you. You are never going to be successful on a claim you did not know a distribution was going to be taxable, nor will you be able to show damages on a reasonable reliance to what the plan representative said. Even if you went to a tax professional with the question beforehand for advice you could reasonably rely on, I don't know if you could claim you did not know it would be taxable. If you could, I suppose we can imagine bad advice on what year to take it could make a difference in different tax rates. But, it would not be a ballpark guesstimate, it would need to be an actual calculation of the different marginal rates for the distribution between two years.

Bottom line? If you followed plan procedures for documenting the hardship withdrawal, you should be able to get an amended 1099 and the penalty removed. If not? no. The taxes would always be due and you should know that. I think there was not a reasonable reliance on the advice in the first place and probably no damages in the second place.

 

[justalayman]

The money is always considered income since it is in fact income. It was merely diverted income exempted from income tax at the time it was earned. Due to that, it is proper it be subject to income tax. Your only argument is with the possibility of the 10% early withdrawal penalty and unless the person that gave you the incorrect information was a paid (by you) tax advisor, you have no claim you had a right to depend on their advice and as such would have a claim against them. Unless the person advising you had access to your entire financial records it would be impossible for them to accurately advise you of your liability for the penalty. Did they have such access and did you hire them to advise you?

 

[cbg]

Assuming that you are talking about a 401(k), 403(b) or 457(b) plan sponsored by your current employer, hardship withdrawals are VERY strictly regulated by law and whether there is/is not a penalty or tax is likewise set by law. The employer and/or administrator have no reason to lie to you; they obtain no benefit (in fact, something of the opposite) by your taking a withdrawal so I very strongly suspect it was an error rather than a lie.

However, be that as it may, someone upthread pointed out that you would have owed the taxes anyway, which is quite true. Unless you are going to claim that you would not have taken the withdrawal if you had known it would be taxed/penalized, you have no damages. (And if you are going to claim that I'm going to ask you why, in that case, you took the withdrawal instead of doing whatever you were going to do instead, since taking a withdrawal from a retirement fund if there is ANY other solution is, frankly, a stupid thing to do.) So I suggest you take what they're offering and run with it. It's a shame they made a mistake but the result would have been exactly the same even if they hadn't.