How do I get TurboTax to fill out Form 8606? I am reporting a conversion of a IRA to Roth IRA, but the 1099-R box 7 uses code "G" instead of "7" so it's not working.

[cschary]

The instructions for backdoor conversions trigger the contribution limits, so they don't work for this situation.

[dmertz · Accepted solution]

Code G indicates a distribution that is not includible on Form 8606.

If in addition to having code G in box 7 the Form 1099-R has the IRA/SEP/SIMPLE box marked, the form is reporting a rollover from a traditional IRA to a traditional account in a 401(k), 403(b), 457(b) or the federal TSP, not to a Roth IRA.  If the IRA/SEP/SIMPLE box is unmarked, the form is reporting a distribution from a 401(k), 403(b), 457(b) or the federal TSP and distributions from these types of accounts are not to be included on Form 8606 because they are not distributions from IRAs.

[cschary]

I'm still confused.  I know I need to pay taxes on the amount that was reported on the 1099-R ($40,000), even though it's termed a rollover and not a distribution.  How is that reported in TurboTax? I think I did that through the questions about the 1099-R when I entered it, but the preview of the 1040 form shows the word "rollover" on line 5b and the amount listed to the right of that is nearly the same amount as was reported on line 5a - a lot more than what rolled over.  What am I missing as to how this is handled in TurboTax and on my return?

[MarilynG1]

If you have a 1099-R with a Code G for a Rollover, when you enter this in TurboTax, you can indicate that you converted part of the distribution to a Roth IRA in the follow-up questions.

Per Expert @RaifH:

"To enter this correctly in TT Premier Online, it must be split into two separate 1099-Rs, one for the rollover to the traditional IRA and one for the conversion to a Roth. As long as the total and distribution codes match, this will not cause a problem:

1. Go to Federal > Wages & Income > Retirement Plans & Social Security > IRA, 401(k), Pension Plan Withdrawals (1099-R) and click Start / Revisit.
2. Add your 1099-R with all the information the same, except the distribution exactly as it is reported to you. If you have a taxable amount in Box 2a, include that on the Roth conversion. If taxable amount not determined is checked, it is okay to keep that checked for both distributions. Start with the portion that you converted to a traditional IRA.
3. Confirm whether or not the IRA/SEP/Simple box is checked.
4. After a few more screens, Tell us if you moved the money through a rollover or conversion select I rolled over some or all of it to an IRA or other retirement account within the time limits (normally 60 days) for the portion that you rolled over into a traditional IRA. 
5. Confirm the entire amount was rolled over. You should not be taxed on the rollover.
6. Repeat with the portion of the distribution that was converted to a Roth IRA.  After entering the information and going through the same few screens, select I converted some or all of it to a Roth IRA and confirm you converted the entire amount.
7. You will be taxed on the Roth conversion but will not pay the additional penalty for an early withdrawal."

Here's more info on How to Enter a Back-Door Roth Conversion and Form 8606. 

[cschary]

I really appreciate your patience in answering my questions.  I understand your last set of instructions, but the issue is that I did a direct rollover from a traditional 401(k) to an existing Roth IRA at another institution, so I only received one 1099-R form (from the sending institution, the Thrift Savings Plan).  That is what seems to be the problem - that I didn't do a direct rollover to a traditional IRA first and then do the conversion, since that was what TSP  instructed me to do at the time (but now they've updated their instructions to do the two-step process instead).   Since I only have one 1099-R to refer to, and I've already entered that per the instructions, what should do I next to report this properly?

[cschary]

I tried entering the one 1099-R form twice to portray the $40,000 rollover transaction as a two-step process (even though it wasn't) and that only increases my income total by an additional $40,000.  The receiving institution (Vanguard) didn't think I needed a 1099-R from them since I didn't actually do the conversion in two-steps with them but just did the direct one-step rollover.  This is why I'm having such trouble!

[dmertz]

The dollar amounts on the single Form 1099-R must be split between the two split Forms 1099-R such that the dollar amounts sum to the amounts on the original Form.  Assuming that any dollar amount in box 5 is less that the amount deposited into the Roth IRA, all of the amount in box 5 and any amount in box 2a would be allocated to the one that you report as having been moved to a Roth IRA.

[cschary]

I apologize for taking up so much of your time with my questions, which turned out to be me making something out of nothing!  I re-read the earliest response to this string of questions, and I realized it was telling me the fact that I was using funds from a traditional 401(k) for my backdoor conversion to a Roth meant I didn't need use form 8606, which is for IRAs and not 401(k)s.   Therefore, TurboTax handled it correctly even though it looks strange on the 1040 form with the word "rollover" typed in on line 5(b) and not the amount of the rollover,  and no other forms or supporting documentation other than the 1099-R are needed.  I appreciate your efforts to help me with this.  It's now all resolved.

[dmertz]

As defined in the tax code, the term "Roth conversion" only applies to the movement of funds from a traditional IRA to a Roth IRA, but because of the similarities it's not unusual to see the term used to describe a taxable rollover from a 401(k) to a Roth IRA even though it's not technically a conversion.  That's why the word ROLLOVER appears next to line 5b.