1099-R Distribution Code H with IRA/SEP/SIMPLE checked

[user17719637049]

On my Form 1099-R, Box 7 shows distribution code H, and the IRA/SEP/SIMPLE box is checked. However, when I enter this information into TurboTax, I receive the following error message:

"This box is checked if your distribution is from a traditional IRA, SEP IRA or SIMPLE IRA but not for Roth IRAs.". My rollover was from a Roth IRA to another Roth IRA (a direct rollover). I contacted the financial institution that issued the 1099-R, and they confirmed that distribution code H is correct for a direct Roth IRA-to-Roth IRA transfer. However, they also stated that the IRA/SEP/SIMPLE checkbox should be marked.  I am unable to move forward with turbo tax by entering the form exactly as it appears (code H with the IRA/SEP/SIMPLE box checked).   Is the 1099-R form wrong or it is a bug in Turbotax?   How should I proceed to resolve this?

[dmertz · Accepted solution]

The Form 1099-R has been prepared incorrectly because code H is not permitted to be combined with marking of the IRA/SEP/SIMPLE box.  Code H is only to be used for a rollover to a Roth IRA from a designated Roth account in an employer plan like a 401(k).

Because employer plans virtually never make the mistake of marking the IRA/SEP/SIMPLE box incorrectly, I assume that your assertion that the funds came from a Roth IRA is correct.  If the Roth IRA was moved to another Roth IRA by trustee-to-trustee transfer, which I suspect is the case, no Form 1099-R should have been issued.  In this case you'll need to obtain a corrected Form 1099-R showing that $0 was distributed from the original Roth IRA.  If the payer (which I'm guessing is a bank or savings & loan, they routinely make such errors due to notoriously inadequate training of staff) refuses to correct the Form 1099-R, you'll need to submit a substitute Form 1099-R (Form 4852)  identical to the one you received except showing that $0 was distributed.

If the funds were actually made payable to you and within 60-day you rolled the distribution over to another Roth IRA, which does not seem to be the case based on your description of the transaction, the Form 1099-R would need to have code J, T or Q in box 7 and the IRA/SEP/SIMPLE box unmarked.  In this case the payer would need to correct the Form 1099-R to show the correct entries in box 2a, 2b, 7 and have the IRA/SEP/SIMPLE box unmarked.

And to be clear, the IRA/SEP/SIMPLE box is never marked for a distribution from any kind of Roth account.

[user17719637049]

Thank you so much for your reply, it is very helpful. You assumption is correct it is rolled over from a Roth IRA to another Roth IRA.  The rollover check was made to the receiving financial institute.

I called the company who issued the incorrect 1099R and was on the phone for over an hour being transferred from group to group, they still did not take my request to issue a corrected 100R form.  

On the 1099R form I received field 1 shows the gross distribution (not a big number).  The 2a (taxable amount) is 0.    When you said “ In this case you'll need to obtain a corrected Form 1099-R showing that $0 was distributed from the original Roth IRA. “  Do you mean the taxable amount to be “0”.    If so, can this 1099 still be used?   My understanding is that if I file form 4852, I will not be able to file my tax electronically.   Thank you

[dmertz]

The gross distribution amount in box 1 should be $0.  As this was a trustee-to-trustee transfer, it was neither a distribution nor a rollover.  Because it was not a distribution, the gross amount distributed was $0.  Of course with nothing having been distributed, that taxable amount was also $0.

"My understanding is that if I file form 4852, I will not be able to file my tax electronically."

Correct.

While submitting a Form 4852 gives you the opportunity to provide a preemptive explanation, a possible alternative would be to simply omit the Form 1099-R.  Because this Form 1099-R shows $0 taxable, it seems unlikely that the IRS would find that there was any underreporting of income.  If the IRS Automated Underreporter System did kick out your tax return for examination, the worst thing I can see happening would be that the IRS would question the nature of the transaction itself since the Form 1099-R is nonsensical, at which time you could provide explanation.

[user17719637049]

Thank you so much for your explanation and help.

[dmertz]

One additional clarification:  If the financial institution does finally recognize their error and issues a corrected Form 1099-R showing a gross distribution of $0, you would still omit the corrected form from TurboTax.

Make sure that you retain all documentation relating to the movement of these funds, particularly anything that shows that the payment was made directly to the new Roth IRA, in case the IRS questions the reporting of the transaction.  Absent such documentation, the IRS could assume that a distribution occurred.  Because it was a trustee-to-trustee transfer, there should be no Form 5498 from the new IRA reporting receipt of a rollover, so you'll need to have documentation that supports your position that the transfer was completed.