It all depends on where you are seeing that TurboTax is adding the rollover to your income. Since technically there was a distribution made from the 401k and it was reported on Form 1099-R, some of the summary screens within the program will add that money to your 'income'. That does not necessarily mean that it is being included as income on your actual tax return.
To be certain whether or not you are being taxed on the rollover, you need to take a closer look at your actual tax return. When you take a look at your Form 1040, the Form 1099-R distribution amount will be shown on line 5a. You should also see the word 'rollover' underneath that line. Then, if any of the rollover is being taxed and included in your taxable income it will be shown on line 5b.
If you see that there is a taxable amount on line 5b, then you should revisit the Form 1099-R section to verify your entries and verify that the follow-up questions were answered accurately.
If the amount on line 5b is zero or blank, then the rollover distribution has no bearing on the education credit calculation. There is something else making you ineligible for that credit.
You can preview your Form 1040 if you are using TurboTax Online. Use the following steps while working in your tax return:
- In the navigation area on the left side of your screen, click Tax Tools to expand your choices
- Click Tools, which will open the Tool Center
- Click View Tax Summary under “Other Helpful Links…”
- Click Preview My 1040 to see your actual tax form
If you are using one of the CD/downloaded versions of TurboTax, click the Forms button in the upper right corner of the screen to go to Forms Mode where you can view Form 1040 or any other form that is included as part of your return. Once you are in Forms Mode, click the form name in the list on the left side of the screen.
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