Rollover question

[user17581197005]

I rolled over $25K from a 457 account to a traditional IRA, and then rolled over $16K from the traditional IRA to a Roth IRA. When I filed my taxes, I only reported the $16K conversion because it was taxable. But I have read some stuff indicating I probably should have reported the $25K nontaxable rollover as well. So my questions are: 1) do I need to do a 1040X to report that nontaxable transfer? 2) how exactly do I report that on the tax form?

[SwapnaM]

Yes, you should have reported the $25K rollover on your tax return, even though it’s not taxable.

• The IRS considers all rollovers reportable, even if they are tax-free.
• This helps the IRS match your Form 1099-R (which shows the distribution) with your tax return to confirm that the funds were properly rolled over.

Topic no. 413, Rollovers from retirement plans has the information about reportable rollovers.

Yes, it is highly recommended that you file an amended return using Form 1040-X to report the nontaxable rollover. If you did not report the $25K rollover, the IRS might assume it was a taxable distribution, which could trigger a notice or audit. You should clearly state that you are amending the return to report a nontaxable rollover from a 457(b) account to a traditional IRA that was not included on the original return. This will help the IRS understand why you are filing an amendment and will match your records with theirs.

How exactly do I report that on the tax form?

• Line 4a (IRA Distributions): Enter the full amount distributed from the 457(b) plan (i.e., $25,000).
• Line 4b (Taxable Amount): Enter $0.
• Write “ROLLOVER” next to line 4b to indicate it was a nontaxable rollover.

@user17581197005 Thanks for the question!!

[user17581270646]

Does Pro-Rata rule apply to this scenario?

[user17581197005]

The problem is that there is only one line 4b, and I have already reported the taxable $16K conversion there.

[SwapnaM]

The Pro-Rata Rule applies only when you have both pre-tax and after-tax amounts in your Traditional IRA and you do a conversion to a Roth IRA.

• If the $25K rollover was entirely pre-tax, and you had no other after-tax basis in your Traditional IRA, then the $16K Roth conversion is fully taxable, and the Pro-Rata Rule does not apply.
• If you had after-tax contributions in your Traditional IRA before the conversion, then the Pro-Rata Rule would apply, and part of the $16K would be non-taxable.

@user17581270646 Hope this helps!!

[SwapnaM]

Since both the $25K rollover and the $16K Roth conversion are IRA distributions, you need to combine them on Line 4a, and then split the taxable portion on Line 4b:

Example:

• Line 4a (IRA Distributions): Enter $41,000 (i.e., $25K + $16K).
• Line 4b (Taxable Amount): Enter $16,000 (only the Roth conversion is taxable).
• Write “ROLLOVER” next to Line 4b to indicate that part of the distribution was nontaxable.

This tells the IRS:

• You received $41K in total IRA distributions.
• $25K was a nontaxable rollover.
• $16K was a taxable Roth conversion.

If you are using TurboTax, the software would do this for you once you enter the 25K distribution & select the option that it is a direct rollover.

@user17581197005 Thanks for the question!!