1099-R provided as distribution, not rollover

[jim670311]

My financial institution has issued 1099-R's as taxable distributions with a taxable amount in box 2a.  This transaction was done as a rollover, however the financial institution refuses to amend the 1099-R's stating they are not tax advisors.  How do I correct these 1099-R's to accurately reflect the transactions as rollovers?  I do have the statements from the accounts showing the contribution to the Traditional IRA  immediately moved to the Roth IRA.  Currently, the distribution code is listed as a "2".  I suspect the code should have been a "G" 

[DanaB27]

If you converted funds from a Traditional IRA to Roth IRA then you can indicate this in the follow-up questions.

In TurboTax Online:

1. Click on "Search" on the top right and type “1099-R”  
2. Click on “Jump to 1099-R”
3. Click "Continue" and enter the information from your 1099-R
4. Answer questions until you get to “Tell us if you moved the money through a rollover or conversion" screen and choose “I converted some or all of it to a Roth IRA”
5. On the "Here's your 1099-R info" screen click "Continue"
6. Answer "Yes" to "Any nondeductible Contributions to your IRA?" if you had any nondeductible contributions in prior years.
7. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

In TurboTax Desktop:

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 "continue"
11. Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
12. Answer the questions about the basis from line 14 of your 2023 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

To enter a nondeductible Traditional IRA contribution for 2024:

1. Click on "Search" on the top right and type “IRA contributions” 
2. Click on “Jump to IRA contributions"
3. Select “traditional IRA”
4. Answer “No” to “Is This a Repayment of a Retirement Distribution?”
5. Enter the amount you contributed
6. Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
7. Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had a nondeductible contribution before this tax year.
8. Enter your basis in the Traditional IRA from your 2023 Form 8606 line 14 (if you had a basis in the prior year)
9. On the “Choose Not to Deduct IRA Contributions” screen choose “Yes, make part of my IRA contribution nondeductible” and enter the amount (if you have a retirement plan at work and are over the income limit it will be nondeductible automatically and you only get a warning and then a screen saying $0 is deductible).

[jim670311]

Does the amount listed as taxable in box 2a cause issues in calculating the tax?  The dollar amount of the contribution is listed in box 2a as taxable.  I thought a Backdoor Roth Conversion was a neutral tax event, so I have gone back and put a zero in the box 2a where the required 1099-R information is requested and there is a significant difference in the tax.  It doesn't seem that the TurboTax questions about a rollover are addressing the presence of a "taxable amount" in box 2a.  

[jim670311]

or the code that is provided within  Box 7.  This is listed as a "2", not a "G".  I am concerned these issues are causing a tax greater than I should be paying.

[DanaB27]

If entered correctly then TurboTax will calculate the taxable amount on Form 8606. If you have a * next to line 13 on Form 8606 then TurboTax is using the Taxable IRA Distribution Worksheet to calculate the nontaxable portion according to Publication 590-B.

Please note, if you have earnings or other pre-tax funds in your Traditional/SEP/SIMPLE IRAs the part of the conversion will be taxable according to the pro-rata rule.

Code 2 is correct. 

Form 1099-R instructions state: "Reporting Roth IRA conversions. You must report a traditional, SEP, or SIMPLE IRA distribution that you know is converted this year to a Roth IRA in boxes 1 and 2a (checking box 2b “Taxable amount not determined” unless otherwise directed elsewhere in these instructions), even if the conversion is a trustee-to-trustee transfer or is with the same trustee. Enter Code 2 or 7 in box 7 depending on the participant's age."

[jim670311]

Does the pro rata apply to a Back Door Roth Conversion, where the contribution is made to a Traditional IRA and immediately transferred to a Roth IRA?  That doesn't seem right.  The money is going into the Traditional has already been taxed, it shouldn't be taxed again going to the Roth.  Again, maybe I am misunderstanding, but I thought the Back Door Roth Conversion was a tax neutral event.  I appreciate your patience.

[DanaB27]

If you did not have earnings before the conversion or any other pre-tax funds (balance was $0 on December 31, 2024) then the pro-rata rule won't apply and the conversion isn't taxable and line 4b of Form 1040 should be $0.

If this is not case please review your entries and my instructions above or these instructions: How do I enter a backdoor Roth IRA conversion?. Also, make sure you have the IRA/SEP/SIMPLE box checked when you entered the Form 1099-R.

[jim670311]

Thank you for your patience