1099-R Conversion of a Traditional IRA to Roth IRA Issue

[kg1983]

I converted my traditional IRA to a Roth IRA in 2022.  I was sent a 1099-R, in which the gross distribution was $24k (box 1) and the taxable amount was $0.00 (box 2a).  The distribution code is G (box 7).  I entered the information into Turbo Tax, which raised my total income BUT it does not seem to be adding any of the taxes that should have come out with the conversion.  I am under 59 1/2, and I did not receive an actual check to convert the money, it was done by my financial advisor and his company.  Also, the additional income has not  changed my tax bracket.

I feel like I should owe taxes on this conversion, but I also saw online in these forums that if the box 7 is G, then it is a non-taxable event.  Turbo Tax asked me three times if this was a conversion from a 401k to a Roth IRA, which it was a conversion from a Traditional IRA to a Roth IRA, so I'm not sure if that is considered the same thing or not.

Could anyone assist on this?  I really don't want to be in a situation where I don't pay my taxes and I should have.  

[dmertz]

There is a lot of misinformation on these forums with regard to code G.  Code G is used for both taxable and nontaxable direct rollovers.

My guess is that the IRA/SEP/SIMPLE box on this Form 1099-R is not marked, indicating that the direct rollover was from a traditional account in a qualified retirement plan like a 401(k), not an IRA, to a Roth IRA.  (Code G is never to be used for a Roth conversion from a traditional IRA.)  For a rollover to a Roth IRA this Form 1099-R should have the taxable amount in box 2a, not $0.  If you financial advisor handled this transaction, I would first contact the financial advisor to find out if they properly advised qualified retirement plan that the rollover was to be to a Roth IRA and, if so, contact that qualified retirement plan to obtain a corrected Form 1099-R since this was their error under these circumstances.

If the financial advisor did not properly indicate to the qualified retirement plan that this was a rollover to a Roth IRA, the plan is not likely to correct the Form 1099-R.  In that case you could get TurboTax to treat the rollover as taxable by entering a zero in box 5 of TurboTax's 1099-R form and indicating in the questions that follow that the rollover was to a Roth IRA.  However, it's possible that the IRS will think that you have overreported income if you do this.  The alternative is to prepare a substitute Form 1099-R (Form 4852) in TurboTax showing the correct taxable amount in box 2a, but doing so will prevent you from e-filing.

[kg1983]

Understood.

I did speak with my financial advisor. The first company who owned my traditional IRA and submitted the 1099-R did not take taxes out on the transfer, so they submitted the 1099-R as an IRA to IRA transfer that is non-taxable.  The second company who accepted the transfer and opened up my Roth IRA did not take taxes out either, because doing so would have meant that I would pay a penalty on the money because I'm under the age of 59 1/2.  They sent me a 5498 showing the Roth IRA conversion amount (which matches the distribution amount from the first company) but will not be sending me a 1099-R either.  Essentially, the transfer went in properly, but neither companies have actual documentation to prove that taxes should be taken out on the full amount transferred.  It's just a notation on a form that isn't even used for Turbo Tax purposes.

I think I will have to opt for your second option, where I put in the corrected amount for box 2a, which should show that the full amount is eligible to be taxed and then send in as much documentation as I can to back up why I did that.  I just don't want to wind up in a situation where I'm not properly accounting for those conversion taxes and am audited.  I'm actually trying to do the right thing here 🙂

Thanks!

[dmertz]

As I said, the code G Form 1099-R appears to imply that the account at the first company was a plan like a 401(k) and not an IRA.  Please confirm that the code-G Form 1099-R does not have the IRA/SEP/SIMPLE box marked.

Assuming that to be the case, the transfer did not go entirely properly because the first company thought the money was going to a traditional IRA but the funds actually apparently went to a Roth IRA.  That's why you are having a bit of a complication reporting this as taxable..