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Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

Using step-by-step resulted in some rollover money being listed as taxable income. I needed to manually correct the 1099R on steps B5 and B6. For 401K rollovers to a ROTH IRA, the program should also ask if the entire amount  was converted to a ROTH IRA and if not, then ask for the amount rolled over to a ROTH IRA.  If the remaining money (distribution minus ROTH rollover) was rolled over to an IRA, that money should not be taxable. (I have the CD version.)

10 Replies
Level 20

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

If you did a split simultaneous distribution and rollover, with some amount going to a traditional IRA and some going to a Roth IRA, TurboTax instructs you to split the Form 1099-R into two, one for the portion rolled over to the traditional IRA and the other for the portion rolled over to the Roth IRA.  The dollar amounts on the two split Forms 1099-R must total the dollar amounts shown on the original.  All other entries on each of the split Forms 1099-R should be then same.

Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

That will work.
What I did first was to use the step-by-step to create the 1099R (just as sent to me by my financial institution). Then I completed all the step-by-steps for the 1099R. When complete, I then opened Forms and opened this particular 1099R. The correction on page 2 of the 1099R only requires two changes: (1) un-check the box on line B5 (entire distribution was NOT converted to a ROTH IRA) and (2) on line B6, enter the amount that was converted to a ROTH IRA. The difference between the Gross distribution (page 1, box 1) and line B6 is the amount rolled over to the IRA.
Level 20

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

In the case were there is after-tax basis in the distribution from the 401(k), I'm not sure that modifying the single TurboTax 1099-R form in this way results in the proper allocation of the basis.

Just be aware that if changes made directly to the form in forms mode produces any related calculation error in TurboTax, TurboTax's accuracy guarantee does not apply.  Therefore, TurboTax instructs the user to split the Form 1099-R, preserving the accuracy guarantee (and ensuring the proper allocation of basis).
Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

My method does result in the proper total Gross distribution amount and Pension Taxable amount on schedule 1040. I will carefully monitor any error conditions that arise. If any errors are flagged, I'll probably revert to your suggested method.

Keep in mind that if the step-by-step method was not used in tax form completion
, the 1099R for this type of rollover would be manually filled out exactly as I described. It appears to me that the 1099R section for Rollovers, Roth Conversions, etc. was created to handle this exact situation of a split conversion from a 401K to both a Roth and IRA. In my opinion, the real issue here is that the step-by-step questions do not adequately support the automatic completion of this type of  1099R conversion.
Level 20

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

This section of step-by-step mode used to be more accommodating of situations like this, but for some reason the behavior was made more restrictive.  Perhaps there was some scenario that the previous implementation didn't handle properly and a decision was made to instruct users to split the Form 1099-R in all cases other than simply a partial rollover to a single account.
Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

Related to the after tax basis, are you saying that the after-tax amount is somehow not properly handled by my method of modifying the 1099R? I did confirm that the after tax amount is indeed NOT reported on form 1040 as taxable income as related to the conversion to a Roth. I'm not aware of the after tax amount being used anywhere else. It doesn't appear that it would be carried forward to future years as it is only relevant to this years taxable income.
Level 20

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

My concern is not with your case where only the after-tax portion is rolled to the Roth IRA and only the pre-tax portion is rolled to the traditional IRA (and nothing left over), resulting in a zero taxable amount.  My concern is with different splits and whether or not the rollover was direct or indirect.  By attempting to report these with a single entered 1099-R, I am able to cause all sorts of reporting errors in these cases.  I suspect that to simplify the program and the question sequence that TurboTax just requires all cases of a single Form 1099-R reporting multiple rollovers to different types of IRAs to be entered as split Forms 1099-R.

Also, because the payer also typically combines multiple non-simultaneous distributions and rollovers on a single Form 1090-R, TurboTax has no way to know (without a convoluted question and answer sequence) if it can apply all of the after-tax amount to the Roth conversion or not.
Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

That certainly makes a lot of sense, and I understand why use of a single 1099R with a complex set of step-by-step questions could result in un-intended tax consequences for certain types of distributions.
Level 1

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

FYI...I decided to run a test case and split the 1099R into two (as you suggested). One was for the 401K rollover to a Roth and the other a 401K rollover to an IRA. The Form 1040 pension taxable amounts (box 16b) were identical between the two methods.

However, close examination of the Form 1099-R Summary for the two approaches indicated differences in four items in the Pensions and Annuities section on Page 2. Although the Taxable amount of the distribution was identical, various values were either missing or different. The values shown for the split 1099Rs were correct based upon the descriptions for the related line items

Based on this data, I decided to proceed with the split 1099R approach that you recommended.
Level 20

Does step-by-step for 1099Rs correctly handle 401K rollovers to both ROTH IRAs as well as IRAs?

I ignore the summary pages.  I do not consider them to be trustworthy.  At best I consider them to be misleading.

I had thought about the possibility of side effects in the IRA history carried forward, but didn't really want to get that deep into the discussion since there are so many permutations.