401K rolled over from bank1 to Bank2. Check sent directly from Bank1 to Bank2. No cash out. 1099R shows partial cash out. How to reconcile correctly with 5498 in TT?

[TaxNewbe]

Form 5498 shows correct information but, TT doesn't let me upload it. How do I enter correct data even when my 1099R has wrong information?

[macuser_22]

401(k) plans are employer plans and do not have a 5498 form.   Only IRA's do.   If you received a 5498 it it an IRA, not a 401(k).   You are probably thinking of a 401(k) rollover to a Traditional IRA (sometimes called a "rollover IRA" but is really just a Traditional IRA).

5498 form are information only and do not go on a tax return.     If you did not receive a 1099-R then there is noting for you to do or report.

If you do have a 1099-R then just enter it into TurboTax.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

[TaxNewbe]

I had 401k account with my previous employer which used WellsFargo. When I joined current employer (which uses Fidelity), I rolled over the complete amount from WellsFargo 401K to Fidelity Rollover IRA account.

WellsFargo gave me 2 1099-R forms.

1. First form shows partial amount with correct distribution with code G.

2. Second form shows remaining amount with wrong distribution code 8.

I received one Form 5498 from Fidelity showing the complete rolled over amount correctly.

When I enter 2 1099-R forms from WellsFargo, its the wrong information and considers that I cashed out and increases my tax liability.

Is there a way to enter form 5498 with correct amount and data that I didn't cash out anything while moving from WellsFargo to Fidelity? If not, then how do I correctly enter the info in TT?

[dmertz]

The code-8 Form 1099-R is a distribution to you of excess contributions to the original 401(k) and was not eligible for rollover to the IRA, perhaps due to the plan failing nondiscrimination testing.  If the amount on the code-8 Form 1099-R was rolled over to the IRA, it represents a regular contribution to the traditional IRA, perhaps an excess contribution, not a rollover contribution; this amount would need to be entered under Deductions & Credits as a regular traditional IRA contribution.  If this results in an excess traditional IRA contribution, you have until the due date of your 2020 tax return to obtain an explicit return of contribution to avoid recurring 6% excess contribution penalties on the excess.

The amount shown on the code-8 Form 1099-R is taxable to you but is not subject to any early-distribution penalty.  It should appear on line 1 of your Form 1040 as wages rather than on lines 5a and 5b.  However, any investment gains in the IRA required to be distributed with a return of contribution would be subject to tax and, if you are under age 59½, early-distribution penalty on your 2020 tax return.

[TaxNewbe]

I understood my problem.

I actually contributed more than allowed money (19,500) last year to my 401K.

Even without rolling over to the current employer's provider, I would have gotten 2 1099-R. One for the $19,500 and another one for the excess.

What are my options here?

- Can I withdraw the excess amount and then pay the tax?

- Can I roll it over to Traditional IRA now?

- Any other option?

Thanks, 

[dmertz]

Your options were described in my previous reply.

[TaxNewbe]

Thank you for your reply.

I did a thorough review of my 401K account for 2019 and 2020 and I have contributed within the IRS individual allowed limit and there was no employer contribution either.

I did have some gain on my contribution through the fund I invested in. 

By analysing all these numbers, I am still not able to understand how can my account fail the non-discrimination testing when contribution was not over the limit.

Just wondering if I am missing something or the bank made a mistake before I make any kind of adjustment in turbo tax? Any pointer will be helpful.

Thank you.

[dmertz]

Nondiscrimination testing takes into account all participants in the plan to make sure that some participants are not disproportionally benefiting from their participation the plan.  If the plan fails the testing, lower elective deferral limits apply.

[macuser_22]

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@dmertz wrote:

Nondiscrimination testing takes into account all participants in the plan to make sure that some participants are not disproportionally benefiting from their participation the plan.  If the plan fails the testing, lower elective deferral limits apply.

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If the plans fault, shouldn't the 1099-R have a code E?

[dmertz]

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@macuser_22 wrote:

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If the plans fault, shouldn't the 1099-R have a code E?

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Probably, but I think I've seen cases described where code 8 was used.  Code 8 might be proper if the plan's elective deferral limit was less than the statutory limit.  Some plans set a lower limit to avoid ADP and ACP failures in the first place.  It might also depend on when the employer discovers the distribution and makes the corrective distribution.

Either way, the plan is required to provide explanation to the employee.