Bug with 1099-R for rollover of after tax contribution to Roth and gain to IRA

[george-472838]

Hi,

It seems that there is a bug or a problem with TurboTax dealing with a 1099-R for a rollover of after tax contributions to a Roth IRA and their gain to a Traditional IRA.

Here is the a sample situation:

• In a 401k, long before 2025, over the years, contributed before tax $200,000 and after tax $10,000.
  • The $10,000 after tax contribution resulted over the years in a gain of $60,000.
• In 2025:
  • Retired.
  • The 401k company rolled over the after tax contribution of $10,000 to a Roth IRA and the gain of $60,000 to a Traditional IRA.
    • After tax contributions are not taxed when rolling over to a Roth IRA.
    • Gains of after tax contributions are not taxed when rolling over to a Traditional IRA.
  • Rolled over $40,000 from 401k to the Traditional IRA.

• In 2026, the 401k company provided a 1099-R with Box 1 - Gross distribution: $110,000, Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $70,000, Box 7 - Distribution code: G. The rest was empty or not checked.

Here are the steps to reproduce the problem:

• Start a new return for couple filing jointly.
• Add Social Security with Box 5: $40,000, that results in a Federal refund of $0.
• Add 1099-R with data from above 1099-R and click Continue.
• Is the IRA/SEP/SIMPLE box on this 1099-R checked? Check (x) No, the box is blank, click Continue.
• Did you move this money from a 401(k) to a Roth 401(k)? This includes rollovers from a regular 401(k), 403(b) or 457(b) plan to a designated Roth 401(k), 403(b) or 457(b) plan. Check (x) No, I didn’t, click Continue.
• Do any of these situations apply to you? Check (x) None of these apply, click Continue.
• Did you move the money to a Roth IRA? Check (x) Yes, this money was rolled over to a Roth IRA, click Continue.
  • Note: There should be an option to specify the amount was rolled over to a Roth IRA.
• Did you make after-tax contributions to a 401(k) or 403(b) plan? This isn’t common but this is money you put in the plan yourself, not from your company. Check (x) Yes, After-tax contribution amount: preset to $70,000.
  • Tried to change After-tax contribution amount to $10,000, the amount of after tax contributions, but it makes matter even worst.

This results in a Federal Tax Due of $2,191 when the 1099-R should not have changed the Federal refund of $0 because all the moves involved for the 1099-R are non-taxable.

'

Thanks in advance and looking forward to your response,

George

[george-472838]

After more googling, it seems that the consensus is to split the form 1099-R, but I haven't found a post that clearly says how to split it, eg. whether all the fields except Box 1, 2a and 5 stay the same or not on the two split forms, whether Box 2a or 5 should be $0.00 or empty in one of the form, whether Box 2b should be checked or not, etc.

For example:

• In ONE 1099-R for rollover from 401k to traditional IRA AND Roth IRA , one user says to use different distribution code for each of the split forms.
• In How do you report a split rollover in your tax return? , one user says that box 2a should be 0, while another says that H&R Block Deluxe handle the 1099-R without problem.
• In Single 1099-R for 401K distribution rolled to two separate destinations says even less.

Does anyone have a list of step on how to split the form?

Thanks,

George

[dmertz · Accepted solution]

The split Form 1099-R for the portion rolled over to the Roth IRA will have in boxes 1 and 5 the amount from box 5 of the original form while the Form 1099-R for portion rolled over to the traditional IRA will have in box 1 the amount in box 1 of the original minus the amount in box 5 [not box 2a as I had originally typed] of the original and a blank box 5.  Everything else on both forms will be the same as the original.

[george-472838]

Original 1099-R: Box 1 - Gross distribution: $110,000, Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $70,000, Box 7 - Distribution code: G. The rest was empty or not checked.

Following the instructions gives:

- 1099-R_1: Box 1 - Gross distribution: $70,000 (the amount from box 5 of the original form), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $70,000 (the amount from box 5 of the original form), Box 7 - Distribution code: G. The rest was empty or not checked.

- 1099-R_2: Box 1 - Gross distribution: $110,000 (box 1 of the original minus the amount in box 2a of the original), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $0 (blank box 5), Box 7 - Distribution code: G. The rest was empty or not checked.

That doesn't seem to make sense. Summing 1099-R_1 and 1099-R_2 should give back the original, but it gives Box 1 - Gross distribution: $180,000 which seems wrong.

Could there be a typo in the instructions?

After looking more deeply into this, this is how I think the split should be made:

- 1099-R_1: Box 1 - Gross distribution: $10,000 (the after tax contributions rolled over from 401k to Roth), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $10,000 (the amount of the box 1 from a Designated Roth account), Box 7 - Distribution code: G. The rest was empty or not checked.

- 1099-R_2: Box 1 - Gross distribution: $100,000 (the gain of the after tax contributions rolled over to IRA and the manual rollover), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $0 (the amount of the box 1 from a Designated Roth account), Box 7 - Distribution code: G. The rest was empty or not checked.

From what I found, Box 5 is any money that is part of a "Designated Roth account". It includes not only the after tax contribution to a 401k, but also the gain of the after tax contribution. See Retirement plans FAQs on designated Roth accounts where it explains that a designated Roth account is a feature in new or existing 401(k), 403(b) or governmental 457(b) plans and it must separately account for all contributions, gains and losses to this designated Roth account until this account balance is completely distributed.

But it seems that the root cause of the problem are the financial institutions that combine rollover to a Roth from a Designated Roth account with rollover to an IRA. the Instructions for Forms 1099-R and 5498 clearly state at the bottom of the section "Designated Roth Account Contributions": "A separate Form 1099-R must be used to report the total annual distribution from a designated Roth account", assuming it includes rollover distribution.

[dmertz]

Yes there was a typo.  For 1099-R #2, it should have said box 1 minus box 5.  $110,000 - $70,000 = $40,000.

Thanks for catching that.  I've corrected it.

[george-472838]

OK. So the corrected instructions give:

- 1099-R_1: Box 1 - Gross distribution: $70,000 (the amount from box 5 of the original form), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $70,000 (the amount from box 5 of the original form), Box 7 - Distribution code: G. The rest was empty or not checked.

- 1099-R_2: Box 1 - Gross distribution: $40,000 (box 1 of the original minus the amount in box 5 of the original), Box 2a - Taxable amount: $0.00, Box 5 - Employee contributions or insurance premiums: $0 (blank box 5), Box 7 - Distribution code: G. The rest was empty or not checked.

But with just the 1099-R_1:

• Is the IRA/SEP/SIMPLE box on this 1099-R checked? Check (x) No, the box is blank, click Continue.
• Did you move this money from a 401(k) to a Roth 401(k)? This includes rollovers from a regular 401(k), 403(b) or 457(b) plan to a designated Roth 401(k), 403(b) or 457(b) plan. Check (x) No, I didn’t, click Continue.
• Do any of these situations apply to you? Check (x) None of these apply, click Continue.
• Did you move the money to a Roth IRA? Check (x) Yes, this money was rolled over to a Roth IRA, click Continue.
  • Note: There should still be an option to specify the amount was rolled over to a Roth IRA, as only $10,000 of the $70,000 was rolled over to Roth IRA.
• Did you make after-tax contributions to a 401(k) or 403(b) plan? This isn’t common but this is money you put in the plan yourself, not from your company. Check (x) Yes, After-tax contribution amount: preset to $70,000, changed to $10,000 as it was the amount of the after tax contribution to the 401k. The $60,000 was the gain of that $10,000.

This results in tax due of $2,180. Adding the 1099-R_2 doesn't change the tax due. And leaving the $70,000 for the question "Did you make after-tax contributions to a 401(k) or 403(b) plan?" seems to work ($0 tax due), but the form "IRA Info Wks" says another story: it sees $70,000 in line "7 Basis in Roth IRA conversions" which I believe is wrong since only the after tax contribution should be the part of the basis, not its gain. My split in a previous post above gives the correct value of $10,000 in line "7 Basis in Roth IRA conversions".

I ended call calling support. The person I talked to agree that after the question "Did you move the money to a Roth IRA?", there should be a box asking the amount that was moved to the Roth IRA. But after talking to other experts, those experts said the only way is to use to use the backdoor Roth IRA conversion documented in How do I enter a backdoor Roth IRA conversion? . It seems to work once your understand what it's supposed to do, but it's badly documented. and it feels like a really bad workaround that I am not sure the IRS would accept as they see two 1099-Rs that don't add up to the one they received.

The backdoor Roth IRA conversion is basically doing:

- Add the 1099-R as if it was a rollover of everything to the IRA. That should not be taxable.

- Go into deductions and mark the amount of the after tax contribution to the 401k as non-deductible.

- Add a 1099-R for the after tax contribution to the 401k as if it was a conversion from the IRA to the Roth IRA . That should also not be taxable because that amount was marked as non-deductible.

Personally, I prefer your proposal of splitting the 1099-R in 2. The IRS should be OK seeing two 1099-Rs since they have the same "Account Number" as the 1099-R they received and they do add up. But my way of splitting the 1099-R under "this is how I think the split should be made" seems to work as it should and feels more logical. And applying a similar logic seems to also work if the 401k company rolled over to the Roth not only the after tax contribution but also its gain which is taxable (box 2a will contain a non-zero value).

Since it seems that TorboTax is not willing to do anything to make this simple, I will be looking at other tax software that don't seem to have this problem.

PS: just in case, I'm working with the desktop version, not the online version of TurboTax.

[dmertz]

These were distributions from a 401(k), not from an IRA, so the IRA/SEP/SIMPLE box must not be marked.

I just reread your original post and what what I see there now doesn't make sense.  Somehow I had the impression that $40,000 after-tax basis was rolled over to the Roth IRA.  As I read it again, the original Form 1099-R is reporting a distribution of $70,000 of after-tax basis and $40,000 of pre-tax money.  This disagrees sharply with your assertion that you had only $10,000 in after-tax basis.  However, you said that the plan rolled over only $10,000 to the Roth IRA, so that agrees with having only $10,000 of after-tax basis.  (Note that any gains on the $10,000 in the after-tax subaccount are pre-tax.)

This all suggests that the original Form 1099-R should have $110,000 in box 1, $0 in box 2a and $10,000 in box 5, so the splitting of forms should be done to show $100,000 to the traditional IRA and $10,000 to the Roth IRA.  The resulting taxable amount will be zero.

[george-472838]

I agree completely with you. At least that's what I thought at first.

But both Schwab and Fidelity gave 1099-R forms with box 5 containing both the after tax contribution and the gain on the after tax contribution. I confirmed that by matching the numbers in the 1099-R with the online transfers in the 401k, IRA and Roth IRA accounts.

I'll call them to confirm what was exactly was included in the content of the 3 boxes 1, 2a and 5 on those 1099-R forms.

[george-472838]

I got Schwab to open a ticket in their backline to double check to see if that 1099 is correct. It should take 3-5 business days. And I was wrong about Fidelity. Box 5 in Fidelity contains only the after tax contributions.