It's a rollover, not received income. The 1099-R needs to be reported on the federal return but it is not taxable if you indicate it was a rollover. It's not a Colorado addition. (If she had kept the money, so that it was a taxable withdrawal, then whether it was Colorado income would depend on where she was living when she got the money. But this is not income because it is a rollover and not a withdrawal.)
