Cashing out IRA early is being counted as rollover

Forum|Forum|3 years ago
March 9, 2023
1 reply
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I did a backdoor roth in 2022 but before that, I also cashed out the money in my traditional IRA (which was rolled over from a traditional 401k) (assume $100)

I would believe I have to pay taxes on the $100 from the cashout but not the backdoor roth money. However, turbo tax is treating this all as rollover even though I marked it as distribution code 1

DanaB27

Level 15

Please review your entries with the follow-up questions when you enter Form 1099-R. You will need to enter the conversion amount (steps 8 and 9).

To enter the 1099-R conversion:

Click "Federal Taxes" on the top and select "Wages & Income"
Click "I'll choose what to work on"
Scroll down and click "Start" next to "IRA, 401(k), Pension Plan (1099-R)"
Answer "Yes" to the question "Did You Have Any of These Types of Income?"
Click "I'll Type it Myself"
Choose "Form 1099-R, Withdrawal of Money from 401(k) Retirement Plans, Pensions, IRAs, etc."
Click "Continue" and enter the information from your 1099-R
Answer questions until you get to “What Did You Do With The Money” and choose “I moved it to another retirement account”
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" (any amount not entered is considered cashed out).
On the "Your 1099-R Entries" screen click "continue"
Answer "yes" to "Any nondeductible Contribution to your IRA?" if you had any nondeductible contributions in prior years.
Answer the questions about the basis from line 14 of your 2021 Form 8606 and the value of all traditional, SEP, and SIMPLE IRAs

Please be aware if you had pre-tax funds from your 401k rollover in your traditional IRA now the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore, each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used.

To enter the nondeductible contribution to the traditional IRA:

Open your return
Click “Deductions &Credits” on the top
Click "I'll choose what to work on"
Scroll down to “Traditional and Roth IRA Contributions” and click “Start”
Select “traditional IRA”
Answer “No” to “Is This a Repayment of a Retirement Distribution?”
Enter the amount you contributed
Answer “No” to the recharacterized question on the “Did You Change Your Mind?” screen
Answer the next questions until you get to “Any Nondeductible Contributions to Your IRA?” and select “Yes” if you had nondeductible contributions before this tax year
Enter your basis in the Traditional IRA from your 2021 Form 8606 line 14 (if you had a basis in the prior year)
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).

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bballlova99Author

Level 2

I only want to mark a portion of it as rolled over.

I have rolled over 6000 from one traditional IRA to a roth IRA.

In a separate IRA, I have cashed out $100. I want to mark the $100 as cashed and pay taxes on it but not mark it as rolled over.

AnnetteB6

Level 15

Since you have two separate accounts involved, you should have two Form 1099-R to enter into your return. One for the back door Roth IRA conversion (not rollover) and one for the $100 that you simply cashed out.

After you enter each Form 1099-R, there will be follow-up questions to answer. For the 1099-R reporting the amount that was converted to the Roth IRA, answer the questions with that in mind. The key point to remember is that you are indicating that the money was converted to a Roth IRA, not rolled over to another account.

For the 1099-R reporting the $100 that you wanted to cash out, watch for the question that asked if you simply cashed out the money or 'did something else' with it.

If you only have a single Form 1099-R reporting both the amount that was converted to the Roth IRA and the amount that you cashed out (for your example, $6100), then you will go through the first set of steps mentioned in the post above by DanaB to indicate that you did a combination of things with the money. You will enter $6000 in the conversion box and anything leftover ($100) will be considered to have been cashed out.

@bballlova99

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