Thank you. I am just very confused because as soon as I entered this information I went from getting a $600 federal return to owing $300 so it sure looks like it is being taxed as income. This was the last thing I had left to enter on my taxes and it made a big difference.
Double check your entries on the 1099R making sure that all amounts are entered correctly. Code G means that 100% of the taxable amount of the 1099R will not be treated as income and thus your refund should not change after entering it.
If box 2a is zero then that means that none of the distribution is taxable.
box 2 shows the taxable amount is 4165 because that is the amount the employer contributed and I will have to pay taxes on it when I withdraw but since it is a direct rollover I shouldn't have to pay on it right now- at least that is what my Financial Advisor is telling me. If I change box 2 to a Zero then I get a refund. If I put in the 4165 for box 2 then I owe. It is about an $800 spread and I don't want to have to pay taxes on this money twice!
If box 2a is the same as box 1 or is the box 1 amount minus the box 5 amount, then that indicates that the 401(k) was directly rolled into a Roth IRA which is a taxable event, and not into a Traditional IRA which would be non-taxable and have a 0 (zero) in box 2a.
Since the 401(k) and Traditional IRA's are before-tax money, then a before-tax account is converted to an after tax account (Roth), the tax must be paid at the time of the conversion.
If that is what you did, then in the TurboTax interview, you would answer "yes" to the 2nd Roth question where it asks if the money was rolled into a Roth IRA. Enter any amount in box 5 when it asks for your contributions and that will not be taxable.
You are not paying twice, since the money will be tax free when withdrawn for the Roth in the future.
If that is NOT what was done, and the money is NOT currently in a Roth IRA then either the issuing trusted made an error on the 1099-R and needs to correct it, of the receiving bank put the money into the wrong type of account.
Just to add - was the money put in to *two* accounts at the receiving bank as is sometimes done - the before tax money (box 2a) in a Traditional IRA and the after-tax (box 5) amount in a Roth IRA?
There is a special way to enter such a transaction so that is is tax free. I can give you the steps to do that if that is what was done.