How do I enter in TurboTax that I took a previous employer 401(k) and rolled it over to a Traditional IRA and then did a conversion of those funds to a Roth IRA?

[marf713]

1099-R form shows a code G which is correct. Under the advice of my bank, I first took the traditional 401(k) funds and did a rollover to a Traditional IRA, and then once funds cleared I converted that money to a Roth IRA. It doesn't seem like there's a clear way to denote this using TurboTax as it only asks if the rollover was directly to a Roth IRA, which mine wasn't (it was converted). Should I just say that it was a direct rollover? It seems when I do this the taxable amount is deducted correctly, but I want to make sure not just the money is correct but the filing.

[dmertz · Accepted solution]

To properly report the rollover from the 401(k) to the traditional IRA, TurboTax only needs to know that the code G direct rollover was not to any kind of Roth account.  The gross amount of this distribution will appear on Form 1040 line 16a or Form 1040A line 12a but will be excluded from the amount on line 16b or 12b.  The word ROLLOVER will appear next to the line.

By entering the separate code 1, 2 or 7 Form 1099-R for the Roth conversion from the traditional IRA, the Roth conversion will appear on Form 1040 line 15 or Form 1040A line 11.

[marf713]

@dmertz Thank you for the reply! I do see on my form in line 16a TurboTax has added the gross amount distribution correctly and left 16b blank, and input "ROLLOVER" to the left of line 16a. The issue seems to be more on line 15a and 15b. For line 15a, the IRA Distributions number looks wrong to me (higher than it should be) and for line 15b, the taxable amount is way too low (it only includes the correct taxable amounts from when I converted my traditional IRA to Roth IRA for backdoor roth and is leaving out the 401(k) rollover funds).

Not sure if this is an error with TurboTax software and if I should just overwrite lines 15a and 15b with the correct numbers?

[dmertz]

Does your tax return include any Form 8606 to handle any basis in nondeductible traditional IRA contributions?

[marf713]

@dmertz Sorry if this message appears twice - doesn't look like TT posted it first time I typed it. Form 8606 Line 1 shows my 2017 $5500 contribution and Line 2 shows my 2016 $5500 contribution+401(k) money. Line 3 sums these correctly but I'm wondering if line 2 should not include the 401(k) money in the basis? Line 13 shows an incorrect nontaxable portion because it includes the 401(k)/Tradition IRA money that was converted to Roth IRA and I know this should be a taxable event. Line 16 shows the correct amount converted but line 17 is definitely not right.

Not sure if I should just override the values or do I need to delete everything and start over in TT for my 1099-Rs and IRA information?

[dmertz]

Form 8606 line 2 should not show any of the money that came from the 401(k) unless you had after-tax money in your 401(k) (most do not).  It seems that somehow you entered an incorrect amount of traditional IRA basis after clicking the Continue button on the Your 1099-R Entries page.  Also make sure that you did not enter under Deductions & Credits any of the rollover amount as a new IRA contribution.  Go back and review your entries.

[marf713]

@dmertz Thank you again for the help! It seems where TT is adding it to my basis incorrectly is when I input my employer rollover (using Easy Guide to determine my basis which asks if I transferred money from a previous employer retirement account). If I choose "YES" and input the amount, it adds to my basis (which it shouldn't). Is a 401(k) rollover to an IRA actually NOT a transfer? TT does not seem to specify that it should have come from an IRA specifically, only a previous employer retirement account (i.e. "marf713 transferred money from an employers retirement plan to an IRA in 2017 or previous year"). Selecting "YES" it then asks for my "Net Rollover Basis from Employer Retirement Plans" and here is where the 401(k) rollover amount changes my refund amount.

Should I say that I did transfer but say the net rollover basis is $0 since it came from a 401(k)? Since 2016 is the year in which I started using an IRA, I'm assuming my basis for 2016+2017 should be $11,000 (I maxed both years)?

[dmertz]

Yes to both questions.  The EasyGuide asks you to enter your Net Rollover Basis from the 401(k).  Your Net Rollover Basis is the amount of after-tax money included in the distribution from the 401(k), NOT the entire amount rolled over.  If you had no after-tax money in the 401(k), you would enter zero as the amount of after-tax basis transferred.

[marf713]

@dmertz Thank you for clearing that up for me. The line "Subtract the nontaxable portion of any withdrawals you took from the IRA after the rollover but before 2017." was what confused as me as I read that to mean subtract nothing (since the 401(k) money is all pretax dollars in this case) and enter full amount of rollover. Leaving the value at 0 seems to fix my basis and tax math.

The other thing I don't get is on my 1040 line 15a, the value for IRA distributions is higher than form 8606 line 16 and not sure how turbo tax came up with that number (it is higher than total for 401(k) rollover + $11k contributions + gains). I assume the "distribution" is just the conversion, but I did not convert the amount being shown on 1040 line 15a. Any ideas why that would be? I feel like I'm really fighting the TT software this year and do appreciate the time you're taking to answer my questions!

[dmertz]

Yes, a Roth conversion is technically made up of a distribution from the traditional IRA and a conversion contribution to the Roth IRA.

The amount on Form 1040 line 15a would be higher than the amount on Form  8606 line 16 if you had amounts distributed from traditional or Roth IRAs other than the amount that you converted to Roth.  That could include amounts withheld for taxes or any other amount distributed from the traditional IRA, amounts reported as Qualified Charitable Distributions, amounts transferred to an HSA, or amounts distributed from a Roth IRA.

[marf713]

@dmertz Thank you for the information. Does a "recharacterization" count towards 1040 line 15a? That's the only way I can come up with that number. It is currently showing as the total amount of money I converted from Traditional IRA to Roth IRA + the amount I recharacterized from Roth IRA to Traditional IRA in 2017 (effectively adding that amount twice since I recharacterized and then did conversion). Does that sound right?

I see on my 2016 tax filing that the IRA distribution is blank even though I noted the recharacterization of funds before I filed so either my guess above is incorrect or I need to amend my 2016 taxes.

[dmertz]

Yes, the amount from box 1 of a code N Form 1099-R will be included on Form 1040 line 15a but will not be included on line 15b.  This is proper.

For some reason, TurboTax does not similarly include a code R Form 1099-R on line 15a, so if the recharacterization of your 2016 contribution occurred in 2017 and you entered a code R 2017 Form 1099-R into 2016 TurboTax, or you simply provided explanation of the recharacterization without entering any code N or code R Form 1099-R into 2016 TurboTax, TurboTax would not include the recharacterization on line 15a of your 2016 Form 1040.  As long as your filed 2016 tax return reflects the correct traditional IRA deduction on Form 1040 line 32 or nondeductible traditional IRA contribution on Form 8606 line 1, you have no need to amend your 2016 tax return.

[marf713]

@dmertz Thank you so much!! This really clears up all the questions I had and I'm relieved to find out no amendment is required on my 2016 taxes (2016 return form 1040 line 15a is blank but 8606 line 1 has the non-deductible contribution listed and recharacterization explanation was provided when filing). I did have both code N and R line items on my 2017 1099-R; TurboTax tells me I need to amend my 2016 taxes due to the 2017 1099-R box 1 code R but sounds like it is wrong (or assumes I didn't provide the 8606 w/ explanation as I did - which is odd since TurboTax had me fill that out!).

Again thank you for the time you took to answer these questions. Sounds like everything I've done is okay and doesn't require amendments.

[dmertz]

Yes, the notice that you got from 2017 TurboTax when you entered the code R 2017 Form 1099-R was meant as a reminder that the transaction represented by this form should have been reflected on your 2016 tax return.  You would only need to amend if your 2016 tax return did not already include the effect of this transaction.