Creating partial rollover in 2018 Deluxe

[tanaats]

I have TT Deluxe 2018. I've already submitted the return, but the IRS has questions. I have good answers, but need some help. I took out 214,437, but 200,000 was rolled over into another IRA. The 200,000 shows up deducted properly in the taxable income calculation, but I can't find where that amount was entered. I go into Edit on the 1099-R but don't see the 200,000 amount in there. What would I have done to enter that partial rollover amount when I first entered the 10990-R? Thanks for any help.

[VolvoGirl]

After you entered the 1099R the interview would have asked you if you rolled over any of it and then the amount.  You should have a 5498 from the other IRA showing the deposit.  You don't enter the 5498 on your return.  

Did you roll it over to another Traditional IRA or did you put it in a ROTH IRA?  Also you had to roll it over within 60 days.  @dmertz  

[dmertz]

What kind of retirement account was this distribution from?

If this was a distribution from a traditional account in retirement plan other than an IRA, TurboTax would ask if this was a distribution from a qualified plan.  As you proceed through editing the Form 1099-R in TurboTax, when you answer that it was from a qualified plan, the next page that TurboTax presents will show that you moved the money to another retirement account, that you did a combination of rolling over, converting or cashing out, and will show the amount that you rolled over, assuming that you entered it properly when preparing your tax return.

If the distribution was from an IRA, TurboTax won't ask if the plan was a qualified plan because the marking of the IRA/SEP/SIMPLE box indicates that its from an IRA.  TurboTax will just go straight to the page showing that you moved the money to another retirement account, that you did a combination of rolling over, converting or cashing out, and will show the amount that you rolled over.

Either way, you can switch to forms mode, open the Form 1099-R and see on TurboTax's line B2 the amount that you reported as rolled over.

[dmertz]

If the IRS is questioning the rollover, perhaps the rollover was to an account in a qualified retirement plan like a 401(k) and not to an IRA.  Qualified retirement plans do not report to the IRA receipt of a rollover, so the IRS often questions whether the rollover was truly completed.  One generally needs to head off this questioning by the IRS by including an explanation statement indicating that the rollover was completed to a particular qualified retirement plan.  When the rollover is instead completed to an IRA, as VolvoGirl said, the IRA custodian issues Form 5498 reporting receipt of the rollover which generally satisfies the IRS.

[tanaats]

Thanks VolvoGirl and dmertz, I didn't expect so much help so fast.

Thanks for the info on how I managed to originally enter the $200K as a rollover. I was puzzled. And yes it is shown correctly in TT in 1099-R line B2.

What happened was that I was funding an annuity with Athene Annuities, which is held in a traditional IRA with them. Instead of initiating a transfer with Interactive Brokers (another traditional IRA) themselves they had me have IB wire the money directly to them. So IB didn't know that it was a direct IRA transfer, and so they sent me a single 1099 with code 7 containg that $200K lumped in with other standard withdrawals. So when the IRA saw that 1099 they thought the whole amount was taxable.

Which resulted a couple of days ago in my receiving a heart-stopping "Proposed amount due" letter from the IRS for $90K for taxes, interest, and a "substantial tax underpayment penalty". <gulp>

I'm fine now that I know what happened. I just need to give something to the IRS documenting that it was a direct IRA transfer. The plan that's in process right now is that Athene will send IB a letter stating that Athene put the money directly into an IRA, then IB will issue me new 1099s.

Thanks for telling me about the 5498. Athene did send me one but since I didn't enter it into TT (that I recall) I'd forgotten about it. So apparently the IRS knows that my Athene IRA was funded, but doesn't connect IB as the source of the funding. 

I have to respond to the IRS letter. I'm sending me the explanation I just gave, plus now I'll send them the 5498 also.

Thanks so much!

[dmertz]

Apparently what happened is that IB reported it as a reportable distribution but Athene internally coded it as a nonreportable trustee-to-trustee transfer, resulting in no reporting on Form 5498, causing the IRS to understandably question whether or not the rollover reported on your tax return was actually completed.  Because you reported it as a distribution an rollover and assuming that you did no other IRA rollovers in the 12 months before and after the distribution from IB, you'll just continue to treat it as a normal 60-day distribution and rollover and provide this explanation and documentation to the IRS that that the rollover was indeed completed.

(The other option would be to amend your 2018 tax return to include a substitute Form 1099-R (Form 4852) to show that the actual distribution was $0 because this was a proper nonreportable trustee-to-trustee transfer that IB mistakenly reported as a distribution.  However, with no other distribution having been rolled over that would result in a violation of one-per-12-months limitation, there's no reason to add that complication, instead just provide the documentation needed to satisfy the IRS for the way that you've already reported it as I indicated in the paragraph above.  Treating it as a nonreportable trustee-to-trustee transfer also would require that IB made the distribution payable to the Athene IRA for your benefit rather than payable to you, probably but not necessarily the case.  It's not uncommon for an IRA custodian to make the money payable to another IRA and still mistakenly report it as a distribution, which a trustee-to-trustee transfer of an IRA is not.)

Note that a trustee-to-trustee transfer of an IRA is different than a direct rollover.  The term direct rollover refers to a reportable movement of funds to or from a qualified retirement plan like a 401(k), not to movement of funds between IRAs.  A trustee-to-trustee transfer of an IRA is neither a distribution nor a rollover as defined in the tax code.

[tanaats]

Thanks for your continued help.

The wire was made payable to "Annuity Life Company". Does that make it a trustee-to-trustee transfer?

I'm not sure that I understand what you mean that I reported it as a distribution and rollover. AFAIK I only reported it as a distribution with IB's 1099, without specifying that it was for a rollover. Just trying to understand.

I did a trustee-to-trustee transfer, to Betterment, within 12 months after the Athene transfer. Will that cause a problem?

In all cases the money never passed through my hands or my bank accounts.

[dmertz · Accepted solution]

If the payment was deposited directly into the IRA (or directly used to fund the IRA annuity), you could take the position that this constituted a trustee-to-trustee transfer.  However, the proper way to identify the payee in a trustee-to-trustee transfer of an IRA is to name the IRA itself, such as "Annuity Life Company FBO Your Name IRA" and even perhaps include the account number.  Identifying the payee in this way makes it improper for the money to be diverted to any non-IRA account by accident or as an intermediate step that would constitute you yourself having constructively received the distribution.

By having the $200,000 on line B2 of TurboTax's 1099-R form, TurboTax excluded the $200,000 from the taxable amount on 2018 Form 1040 line 4b and included the word ROLLOVER next to the line.  This is how it was reported as a distribution and rollover on your tax return, not as a trustee-to-trustee transfer that would have appeared nowhere on your tax return because a trustee-to-trustee transfer results in the sending custodian not issuing any Form 1099-R at all.

A trustee-to-trustee transfer has no bearing on the one-rollover-per-12-months rollover limitation because it is not a rollover.  Done properly, IRA custodian should not have issued any Form 1099-R reporting the transfer to Betterment and you can disregard it.

Also, if any of the originating or destination accounts was an account in a qualified retirement plan rather than in an IRA, that distribution and rollover (always reportable) is disregarded with respect to the one-rollover-per-12-months rollover limitation.  The limitation only applies to IRA-to-IRA rollovers.  (I mention this because some people confuse qualified retirement plans with IRAs.)

[tanaats]

Got it!  Thanks for all of this detailed information you've given me, I really appreciate it!