401(k) to Roth IRA Conversion

[frej2020]

I am converting my employer 401(k) to a Roth IRA with annual transfers.  I do a rollover from the 401(k) to a Rollover IRA and subsequently to the Roth IRA within 60 days.  My problem is the 401(k) transfers include a nondeductible portion that is still being taxed (I had both nondeductible and pretax contributions over the years and Fidelity must ratio them into any rollover).  For example, a $50,000 transfer from the 401(k) includes a $2000 nondeductible portion.  When I enter the $50,000 1099R information includingthat the taxable amount should be $48,000, I end up with the full $50,000 on line 4b of my 1040. 1040 4a should be $50,000 but 4b the taxable portion, should be $48,000 (Form 8606 populates the field of course). I see advice to add a second 1099 but it doesn't seem to work if you answer the IRA questions honestly.  I tried the override of Form 8606 but that prohibits E-filing unfortunately.  Any assistance would be greatly apprectiated.

[DanaB27 · Accepted solution]

To confirm, you made a rollover from the 401(k) to the traditional IRA and then the conversion from the traditional IRA to Roth IRA.

You should have two Form 1099-R one for the rollover and one for the conversion.

Since you had after-tax funds moved into the traditional IRA you will need to indicate in the interview that you had a basis (step 12). Please see Line 2 Form 8606 Instructions for additional information.

To enter the 1099-R conversion and rollover: 

1. Click "Federal Taxes" on the top and select "Wages & Income"
2. Click "I'll choose what to work on"
3. Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)" 
4. Answer "Yes" to the question "Did You Have Any of These Types of Income?"
5. Click "I'll Type it Myself"
6. Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
7. Click "Continue" and enter the information from your 1099-R
8. Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
9. Then choose “I did a combination of rolling over, converting, or cashing out money.” and enter the amount next to "Amount converted to a Roth IRA account"
10. On the "Your 1099-R Entries" screen click "add another Form 1099-R" to add the Form 1099-R for the rollover
11. On the "Did you move this money from a 401(k) to a Roth 401(k)?" screen answer "No"
12. On the "Did you move the money to a Roth IRA?" screen answer "No"
13. On the "Your 1099-R Entries" screen click "continue"
14. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
15. Answer the questions about the basis (line 14 of your last filed Form 8606 plus the after-tax that were rolled over into the traditional IRA) and the value of all traditional, SEP, and SIMPLE IRAs

Please be aware, when you have pre-tax and after-tax funds in your traditional IRA then the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part.