HelloHere is what I did in 2022:I made nondeductible contribution of $6000 to my "Traditional IRA"I took non-hardship distribution (in-service distribution) from my 401k. This distribution contained a majority of my 'After-Tax' contributions through the year but it also contained a small portion of "Pre-tax 401k" contribution., the amount is $260. I rolled over "After-tax" portion to "ROTH IRA" and "Pre-Tax" portion to "Traditional IRA". I then did ROTH conversion of the nondeductible $6000 along with $260 from step #2 above. There were no gains- actually small loss.Now, I have 1099-R, with box 7 code of "2", and the gross distribution of $6260. I understand that I don't owe any taxes on the $6000 portion since I'd categorize that contribution as nondeductible but I suppose $260 portion would need to be taxed. If I follow ROTH conversion process then out of $6260, do I just categorize $6000 as non-deductible contribution? Which would then mean that $260 would automatically taxable and TurboTax will calculate taxes? Should I be getting another 1099-R?

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Random_Bunny

Level 4

Question

Pre-tax 401k portion (in-service distribution) into IRA then ROTH Conversion

Forum|Forum|3 years ago
January 29, 2023
1 reply
28 views

Hello

Here is what I did in 2022:

I made nondeductible contribution of $6000 to my "Traditional IRA"
I took non-hardship distribution (in-service distribution) from my 401k. This distribution contained a majority of my 'After-Tax' contributions through the year but it also contained a small portion of "Pre-tax 401k" contribution., the amount is $260.
I rolled over "After-tax" portion to "ROTH IRA" and "Pre-Tax" portion to "Traditional IRA".
I then did ROTH conversion of the nondeductible $6000 along with $260 from step #2 above. There were no gains- actually small loss.

Now, I have 1099-R, with box 7 code of "2", and the gross distribution of $6260.

I understand that I don't owe any taxes on the $6000 portion since I'd categorize that contribution as nondeductible but I suppose $260 portion would need to be taxed.

If I follow ROTH conversion process then out of $6260, do I just categorize $6000 as non-deductible contribution? Which would then mean that $260 would automatically taxable and TurboTax will calculate taxes?

Should I be getting another 1099-R?

dmertz

Level 15

Some information seems to be missing from the description of the events.

"This distribution contained a small portion of "Pre-tax 401k" contribution., the amount is $260."

Was this the entire distribution from the 401(k)? If so, something doesn't make sense. An in-service distribution of "contributions" (elective deferrals) you had made to the 401(k) is generally not permitted before age 59½. Was this instead a distribution of an after-tax sub-account and the $260 was investment gain (not contributions)? If so, what the after-tax portion rolled over directly to a Roth IRA (so-called mega-backdoor Roth)? If so, why didn't you just directly roll the entire distribution over to the Roth IRA?

I'm guessing that you received a code-G Form 1099-R reporting the distribution from the 401(k) that is also reportable.

The $260 is not a regular traditional IRA contribution (unless it was somehow a distribution that was not eligible for rollover). For the information that follows, I'll assume that no after-tax money was rolled over from the 401(k) to your traditional IRA. You must enter the $6,000 nondeductible traditional IRA contribution under Deductions & Credits. TurboTax will then include this on Form 8606 line 1. On the rest of the form (or, more likely, TurboTax's version of Worksheet 1-1 Form IRS Pub 590-B) TurboTax will calculate the taxable amount using your $6,000 basis in nondeductible traditional IRA contributions. Also be sure to enter your year-end value in traditional IRAs. (If the year-end value in traditional IRAs was nonzero, more than $260 will be taxable and some amount of your basis in nondeductible traditional IRA contributions remains in your traditional IRAs to reduce the taxable amount of future traditional IRA distributions.)

Random_BunnyAuthor

Level 4

@dmertz Good catch. I changed my original post, please see. You are right about something but your assumption is not entirely correct. I have made the changes to the post and you will see what I mean. Thank you for taking time to respond.

dmertz

Level 15

If you haven't received it already, you will receive a Form 1099-R reporting a distribution from the 401(k). Unfortunately, TurboTax is unable to handle a split rollover reported on a single Form 1099-R, so you'll need to split it into two for entry into TurboTax, one for the portion rolled over to the Roth IRA (the amount shown in box 5) and the other for the $260 rolled over to the traditional IRA (enter $0 in box 5 of this one).

The $6,000 traditional IRA contribution that you've indicated was nondeductible must be entered under Deductions & Credits and the Roth conversion is reported by entering the code-2 Form 1099-R and indicating that you moved it to another retirement account, that you did a combination of rolling over, converting and cashing out, then enter $6,260 as the amount converted. After entering the Forms 1099-R, click the Continue button on the page that lists the Forms 1099-R that you have entered and be sure to enter the 2022 year-end value of your traditional IRAs (presumably zero).