I received 1099R from Fidelity for the above distribution. Box 7 has code 2, with IRA/SEP/SIMPLE box checked. This is identical to my other 1099R from another traditional IRA which I used for Backdoor Roth conversion. After both were imported into TurboTax Home&business, they were treated the same, i.e., both were declared non-taxable. I knew better, as SEP contribution is clearly pretax and needs to be taxed on distribution, but I cannot convince TurboTax. I found by changing the box 7 code to G, and uncheck the box for IRA, TurboTax will now tax this, but when I call Fidelity, they refuse to make a corrected 1099R for me, and insist that they made the right version and it was TurboTax that needs to be fixed. Then I stayed on the phone for a TurboTax representative for 1 hour and still could not figure out how to do this, short of changing the code. Would appreciate your professional suggestions!
The codes on the Forms 1099-R are correct, you must not change them.
What TurboTax told you is that the distributions are not subject to "additional taxes," i.e., the 10% excise tax (penalty) on early distributions; code 2 means no penalty. Check your Form 8606 Part II to see how much of your Roth conversions are being treated as taxable. Also check Form 1040 line 4b.
Thanks, but TT did say literally "you do not have to pay taxes on your $$$$ rollover to...". The 8606s only reflect my non-deductible IRA distribution but not SEP IRA. For the SEP IRA 1099R entry, TT did not ask if the rollover is for a Roth. I seriously think this is a TT glitch, but if it was, how come no one has recognized before.
If TurboTax literally said that you do not owe tax on this distribution, it suggests that you somehow told TurboTax it was an ordinary rollover instead of a Roth conversion. I suggest deleting the Form 1099-R that reports the distribution from the SEP-IRA, then reentering it as shown on the Form 1099-R provided by Fidelity. In the questions that follow, indicate that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out, then indicate that amount that was converted to Roth (perhaps the entire amount.