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Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?
Using step-by-step resulted in some rollover money being listed as taxable income. I needed to manually correct the 1099R on steps B5 and B6. For 401K rollovers to a ROTH IRA, the program should also ask if the entire amount was converted to a ROTH IRA and if not, then ask for the amount rolled over to a ROTH IRA. If the remaining money (distribution minus ROTH rollover) was rolled over to an IRA, that money should not be taxable. (I have the CD version.)
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Retirement tax questions
If you did a split simultaneous distribution and rollover, with some amount going to a traditional IRA and some going to a Roth IRA, TurboTax instructs you to split the Form 1099-R into two, one for the portion rolled over to the traditional IRA and the other for the portion rolled over to the Roth IRA. The dollar amounts on the two split Forms 1099-R must total the dollar amounts shown on the original. All other entries on each of the split Forms 1099-R should be then same.
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What I did first was to use the step-by-step to create the 1099R (just as sent to me by my financial institution). Then I completed all the step-by-steps for the 1099R. When complete, I then opened Forms and opened this particular 1099R. The correction on page 2 of the 1099R only requires two changes: (1) un-check the box on line B5 (entire distribution was NOT converted to a ROTH IRA) and (2) on line B6, enter the amount that was converted to a ROTH IRA. The difference between the Gross distribution (page 1, box 1) and line B6 is the amount rolled over to the IRA.
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Retirement tax questions
Just be aware that if changes made directly to the form in forms mode produces any related calculation error in TurboTax, TurboTax's accuracy guarantee does not apply. Therefore, TurboTax instructs the user to split the Form 1099-R, preserving the accuracy guarantee (and ensuring the proper allocation of basis).
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Retirement tax questions
Keep in mind that if the step-by-step method was not used in tax form completion
, the 1099R for this type of rollover would be manually filled out exactly as I described. It appears to me that the 1099R section for Rollovers, Roth Conversions, etc. was created to handle this exact situation of a split conversion from a 401K to both a Roth and IRA. In my opinion, the real issue here is that the step-by-step questions do not adequately support the automatic completion of this type of 1099R conversion.
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Also, because the payer also typically combines multiple non-simultaneous distributions and rollovers on a single Form 1090-R, TurboTax has no way to know (without a convoluted question and answer sequence) if it can apply all of the after-tax amount to the Roth conversion or not.
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However, close examination of the Form 1099-R Summary for the two approaches indicated differences in four items in the Pensions and Annuities section on Page 2. Although the Taxable amount of the distribution was identical, various values were either missing or different. The values shown for the split 1099Rs were correct based upon the descriptions for the related line items
Based on this data, I decided to proceed with the split 1099R approach that you recommended.
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I had thought about the possibility of side effects in the IRA history carried forward, but didn't really want to get that deep into the discussion since there are so many permutations.