To report your VA retroactive reduction without waiting to file an amendment, you should use the adjustment method within the 1099-R entry screens. This allows you to report the 1099-R exactly as issued while simultaneously excluding the non-taxable VA portion.
The Step-by-Step Fix in TurboTax
- Enter the 1099-R exactly as it appears in Federal > Wages & Income > Retirement Plans and Social Security.
- Click through the follow-up questions until you see a screen titled "Was this a payout from a qualified plan?" or "What did you do with the money?"
- Look for "Was any part of this distribution non-taxable because it was a retroactive VA disability award?", select Yes and enter the specific amount of the reduction.
Since you are reporting an amount that differs from what the IRS received from DFAS, keep a copy of your VA Award Letter showing the retroactive effective date and the Audit/Adjustment sheet from DFAS showing the "Combat-Related Special Compensation" or "VA Waiver" calculation.
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